Suppose the Economy Is Initially in Long-Run Equilibrium

question 71

Multiple Choice

Suppose the economy is initially in long-run equilibrium. Now suppose oil prices rise sharply and at the same time, policymakers pursue expansionary monetary and fiscal policies. Which of the following will occur as a result of these two events, given that supply-side effects dominate demand-side effects?

• A) The price level will necessarily rise but the effect on output is indeterminate.
• B) Real GDP must necessarily fall but the effect on the price level is indeterminate.
• C) The price level and real GDP must rise.
• D) The price level must rise and real GDP must fall.

Recognize the structure and function of traditional and modern markets.

Analyze the implications of large-scale production and commercial activities on societies and the environment.

Understand the historical development and characteristics of money.

Distinguish between formal and informal economies.

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