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What happens to prices and output in the long run according to the model of aggregate demand and aggregate supply? Suppose the economy is initially in long-run equilibrium. Then suppose there is a reduction in military spending due to the end of the Cold War.



A. Prices rise; output is unchanged from its initial value
B. Prices fall; output is unchanged from its initial value
C. Output rises; prices are unchanged from the initial value
D. Output falls; prices are unchanged from the initial value
E. Output and the price level are unchanged from their initial values

This question is part of Macroeconomics [Ch. 2
Asked by Emy_, Last updated: May 04, 2020

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John Smith

John Smith

Answered Feb 12, 2017

Prices fall; output is unchanged from its initial value
 

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