3951EconomicsMedium
Suppose the economy is initially in long-run equilibrium Then suppose there is an increase in military spending due to rising international tensions According to the model of aggregate demand and aggregate supply what happens to prices and output in the long run?
APrice fall; output is unchanged from its initial value
BOutput and the price level are unchanged from their initial values
COutput falls; prices are unchanged from the initial value
DPrices rise; output is unchanged from its initial value
Correct answer
D. Prices rise; output is unchanged from its initial value
Explanation
The correct answer is Prices rise; output is unchanged from its initial value.