In a long-run economic adjustment scenario, how does a demand shock affect the price level and the equilibrium output in the economy?

In a long-run economic adjustment scenario, a demand shock occurs when there is a sudden change in the demand for goods and services in the economy. For example, if consumers suddenly decide to spend more money, this increased demand can lead to a rise in the overall price level as businesses respond by raising prices. Initially, this may increase the equilibrium output, as firms produce more to meet the higher demand. However, over time, as prices rise, the economy will adjust, and the output will return to its natural level, which is determined by factors like technology and resources, not just demand. Ultimately, the long-run effect of a demand shock is that the price level increases, but the equilibrium output stabilizes back to its original level.