the graph shows keyness theory of aggregate demand. what is likely to happen if a new aggregate demand curve…
the graph shows keyness theory of aggregate demand. what is likely to happen if a new aggregate demand curve moves to the right? supply (long run) supply (short run) prices and output would drop, and the equilibrium point will stay the same. prices would rise, and output would drop in the short run. prices and output would rise, and the equilibrium point will change. prices would rise, and output would drop in the long run. price demand total economic output
Answer
Brief Explanations:
In Keynesian economics, when the aggregate - demand curve shifts to the right, it indicates an increase in demand. In the short - run, firms respond by increasing output and raising prices due to the upward - sloping short - run supply curve. In the long - run, the economy adjusts back to its potential output level, but with higher prices. When the new aggregate demand curve moves to the right, in the short - run, both prices and output rise as the new equilibrium is established at a higher point on the short - run supply curve.
Answer:
Prices and output would rise, and the equilibrium point will change.