Question

Assume that the economy is in long-run equilibrium with complete information and that input prices adjust rapidly to changes in the prices of goods and services. If there is a rise in the price level induced by an increase in aggregate demand. what happens to real GDP?

Short answer

There'll no be any increase within the equilibrium level of real GDP, butthe worth level increases.

Step-by-step solution

Given Information

LRAS curve at $E2$ which causes a rise within the equilibrium index from $1$to $2$. there'll not be any increase within the equilibrium real GDP because the economy is working at the long term equilibrium level.

Explanation

An increasewithin the aggregate demandwithin the short run causesa rise inindicant and real GDP. However,within the long term because the wages adjust and increase atthe identical pacethere'll no be any increasewithin the equilibrium level of real GDP, butthe worth level increases.