Aggregrate Demand Increase --Price Increase --Inflation Increase, interest rates increase --SR aggregate supply increase --Unemployment will decrease --Wages Increase Long Run… Eventually due to the wage increase, supply will be cut short causing the complete opposite from above. Price will go down, supply will go down…unemployment will be restored back to full emplyment? Eve What happens to interest rates in the LR? is this correct?
looks right but I am doing econ now so dont quote me
I think in the LR, it will cause inflation as the wages go up while restore to the full employment level.
The one point in your logic I don’t agree with is prices going down in the long run. Do to inflation, they at least stay at the elevated levels as seen through the initial price increase.
Interest rates in the long run will increase due to inflation at gowentgone said. Eventually all will reverse as you said and int. rates will come back down to get the economy out of the slump and get people spending again.
Sounds like demand pull inflation. Prices go up when the AD curve moves right, then up again when short run supply moves back to full employment levels.