An increase in aggregate demand in the economy will have what effect on macroeconomic equilibrium in the long run? 25) ______ A) The price level will fall, and the level of GDP will fall. B) The price level will rise, and the level of GDP will be unaffected. C) The price level will rise, and the level of GDP will fall. D) The price level will fall, and the level of GDP will rise.

• B) The price level will rise, and the level of GDP will be unaffected.

Explanation:

Normally, we know there exists a positive relationship between demand and prices such that when aggregate demand increases the output and price of goods and services will also increase. In the long-run, when aggregate demand increases, there will also be an increase in level of production and when the economy approaches potential output, the price will rise more than the output. Once full-employment level of GDP is attained at macroeconomic equilibrium, any rise in the price level remains muted