Suppose the Economy Is Initially in Long-Run Equilibrium

question 9

Multiple Choice

Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. If policymakers allow the economy to adjust to long-run equilibrium on its own, according to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run?

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

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