Suppose the Economy Is Initially in Long-Run Equilibrium

question 19

Multiple Choice

Suppose the economy is initially in long-run equilibrium. Then suppose there is an increase in military spending due to rising international tensions. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run?

• A) Output falls; prices are unchanged from the initial value.
• B) Prices fall; output is unchanged from its initial value.
• C) Output and the price level are unchanged from their initial values.
• D) Prices rise; output is unchanged from its initial value.
• E) Output rises; prices are unchanged from the initial value.

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Definitions:

Argument

A set of statements or reasons put forth to support a conclusion.

Fallacy

An error in reasoning that renders an argument invalid or unsound, often due to misleading premises or irrelevant considerations.

Life on Mars

The hypothesis or scientific inquiry into the potential existence of life, past or present, on the planet Mars.

Mars

The fourth planet from the Sun in the Solar System, known for its red appearance and the subject of significant scientific study and exploration.