ECONOMICS question help: If the Aggregate demand curve is shifted RIGHT, then?

Max R · #1 (**permalink**) 04-13-2008, 02:38 AM

A. in the long run, prices will be higher, unemployment will be lower.
B. in the long run, prices will be higher, unemployment unchanged
C. in the long run, both prices&unemployment are unchanged
D. none of the above

Thank you.

Lorenzo Ferlinghetti · #2 (**permalink**) 04-13-2008, 02:41 AM

A. Make a simple Supply & Demand model with Supply as the curve with positive correlation and Demand as the curve with negative correlation. Mark the Y-axis as Price Level and the X-axis as real gdp or quantity or whatever and see for yourself.

The equi level for price level is now higher, and b/c gdp is shifted to the right and voilà, lower unemployment : ) but higher prices : (

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