If the economy starts at long-run equilibrium and military expenditures increase due to escalating international conflicts, what is the short-term impact on price levels and output according to the aggregate demand and aggregate supply framework?

Show Answers

Prices decrease; output increasesPrices decrease; output decreasesPrices increase; output decreasesPrices increase; output increaseNo change in prices or output

Explanation

When military spending rises, aggregate demand shifts rightward, causing both the price level and output to increase in the short run.