Why does an increase in the price level not cause an increase in long-run aggregate production within the?
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Why does an increase in the price level not cause an increase in long-run aggregate production within the economy?
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Answer:
Just an increase in the price level? I don't think it's necessarily true that it will have no effect on aggregate production. If the increase in price level is caused by activities in the labour market, then long-run aggregate output will be lower. However,if we have a rightward shift of the aggregate demand curve, prices will rise upward - however, the corresponding long-run aggregate supply curve is vertical, so nothing will happen to output in the long-run.
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