Suppose the Economy Is Initially in Long-Run Equilibrium

question 59

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?

• 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.

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Definitions:

Social Solidarity

The bonds that unite members of a society through shared values, beliefs, and behaviors, promoting social cohesion and integration.

Racial Minorities

Ethnic groups that are smaller in number within a particular society or country, often facing systemic inequalities and discrimination.

Informal Deviance

Acts or behaviors that violate cultural norms or expectations but are not necessarily forbidden by law.

Underage Drinking

The consumption of alcoholic beverages by individuals below the legal age set by law.