An unanticipated change in the growth rate of aggregate demand affects production andemploymentbefore they affect prices. Speculate why this occurs.

Solution
An unanticipated change in the growth rate of aggregate demand affects production and
employment before they affect prices. The effects of unanticipated change in aggregate demand
are different in short run and long run. When there is an unanticipated increase in aggregate
demand, prices tend to increase and therefore output also rises. Now output is greater than the
full employment level in the short run. Prices are also somewhat higher. This means that in the
short run, unanticipated increase in aggregate demand...