Does an increase in RGDP mean the NGDP will definitely increase? I know the reverse is not necessarily true.
Also, from EOC
Following a sharp increase in the price of energy, the overall price level is most likely to increase in the short term:
A. and remain elevated indefinitely unless central bank tightens
B. but be unchanged in the long run unless the money supply is increased
C. ~ignored~
Answer is B.
But I was wondering, if money supply is increased, that means interest rates would fall, which would mean consumer and business spending would increase meaning AD would shift right further increasing the price level (although output should go back to normal). In any case, why would the LRAS change? Since eventually it will go back to LR equilibrium, it can’t be A, but B doesn’t make sense… (C was completely wrong anyway).
Another one:
The text says that in a contraction, AD decreases. Fine… Equilibrium is lower meaning price and goods transacted are lower. Fine… Then it goes on to say that this results in excess capacity, excess inputs and goods ready for sale and no longer requiring works to work overtime, which I understood… Up until it said that this causes AD to fall further. How do those factors on the supply side affect AD? Is it because business are not spending as much?