Suppose the Economy Is Initially in a Long-Run Macroeconomic Equilibrium

question 31

Multiple Choice

Suppose the economy is initially in a long-run macroeconomic equilibrium.A shock then hits the economy and we observe that the unemployment rate decreases and the price level decreases.We can conclude that ________ has increased and there is now a(n) ________ gap.

• A)aggregate supply; inflationary
• B)aggregate demand; recessionary
• C)aggregate supply; recessionary
• D)aggregate demand; inflationary

---

Definitions:

Price Increases

An upward adjustment in the cost of goods or services, typically reflecting higher production costs or increased demand.

Economic Rents

Earnings that exceed the minimum amount necessary to keep a factor of production in its current use.

Aggregate Production

The total output of goods and services produced by an economy over a specific time period.

Reallocation

denotes the process of distributing or assigning resources, roles, or tasks differently in response to changes in conditions, preferences, or objectives.