Assuming the economy starts at long-run equilibrium, what are the long-term effects on the price level and output if military expenditures increase due to escalating international conflicts, based on the aggregate demand and aggregate supply framework?

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Output decreases while prices remain the same as beforePrices decline but output stays at its original levelBoth output and price level remain at their initial valuesPrice levels increase, but output returns to its original amount

Explanation

An increase in military spending shifts aggregate demand rightward, causing prices to rise in the short run. However, in the long run, output returns to its natural level as aggregate supply adjusts, leaving output unchanged but with a higher price level.