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      Question

      In the Classical model, if there is an increase in

      aggregate demand, what will be the long-run effect on output and prices?ย 
      A Output increases, prices increase Correct Answer Incorrect Answer
      B Output decreases, prices increase Correct Answer Incorrect Answer
      C Output remains constant, prices increase Correct Answer Incorrect Answer
      D Output increases, prices remain constant Correct Answer Incorrect Answer

      Solution

      ย  In this case, AS is vertical and AD is downward sloping, hence if AD shifts right, at new equilibrium there is increase in price and no change in output.

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