Suppose the Economy Is Initially in Long-Run Equilibrium

question 55

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 short run?

• A) Prices fall; output rises.
• B) Prices fall; output falls.
• C) Prices rise; output falls.
• D) Prices rise; output rises.

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Definitions:

Corner Points

In optimization problems, points on the graph where the feasible region's edges meet and potential solutions are considered.

Linear Programming

A technique for mathematical modeling that aims to find the optimal result within a mathematical model characterized by linear relationships.

Constraints

Limitations or restrictions that affect the planning and execution of projects, strategies, or processes.

Graphical Origin

The point on a graph where the x-axis and y-axis intersect, typically representing the zero point for both axes.