Suppose the Economy Is Initially in Long-Run Equilibrium

question 56

Multiple Choice

Suppose the economy is initially in long-run equilibrium. Which of the following events leads to a decrease in the price level and real GDP in the short run?

• A) A decrease in health insurance premiums paid by firms raises the cost of employing labor
• B) An increase in government transfer payments
• C) An increase in the cost of a key input such as oil
• D) A sharp fall in stock market prices

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Definitions:

Megacorporations

Large, powerful companies that wield significant economic, political, and social influence, often operating on a global scale.

Market Forces

The economic factors affecting the price, demand, and supply of goods and services in a free market.

Modernization

The process of economic change, whereby developing societies acquire some of the social and political characteristics of Western industrial societies; five subprocesses are involved: technological development, agricultural development, urbanization, industrialization, and telecommunication.

Western Development

The expansion and advancement of countries in the Western hemisphere, typically through industrialization, urbanization, and economic growth.