key terms 1 During the immediate short run when aggregate de

key terms 1 During the immediate short run, when aggregate demand increases Select During the short run, when aggregate demand decreases, Select 3 During the long run, when aggregate demand increases, Select

Solution

1) In the short run when aggregate demand increases, AD curve shifts to the right. As a result real output and price both increases. Option c is correct.

2) In the short run when aggregate demand decreases, AD curve shifts to the left. As a result real output and price both are decreased. Option a is correct.

3) In the long run when aggregate demand increases, AD curve shifts to the right. In the long run AS curve shifts to the left to maintain the long-run equilibrium. As a result real output remains constant but price is increased.