Final answer:
In the long run, expanding aggregate demand leads to higher prices (inflation) without reducing unemployment below the natural rate, due to the inelastic nature of the long-run aggregate supply curve.
Step-by-step explanation:
If policymakers decide to expand aggregate demand (AD), there will initially be an increase in GDP and a decrease in unemployment—a situation reflecting greater economic activity. However, in the long run, after the economy has reached its potential output, continued expansionary policy will not further reduce unemployment but will instead lead to higher prices, resulting in inflation.
This outcome aligns with the neoclassical view in macroeconomics, which suggests that the long-run aggregate supply (LRAS) is inelastic, or vertical. Therefore, shifts in AD to the right, while boosting economic activity in the short run, eventually only lead to price-level increases. In the long-run Phillips curve framework, the natural rate of unemployment does not change due to inflationary pressures; instead, different rates of inflation can correspond to the same natural rate of unemployment.