Suppose the Economy Is Initially in Long-Run Equilibrium

question 59

Multiple Choice

Suppose the economy is initially in long-run equilibrium. Now suppose oil prices rise sharply and at the same time, policymakers pursue expansionary monetary and fiscal policies. Which of the following will occur as a result of these two events?

• A) The price level will necessarily rise but the effect on output is indeterminate.
• B) Real GDP must necessarily fall but the effect on the price level is indeterminate.
• C) The price level and real GDP must rise.
• D) The price level must rise and real GDP must fall.

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Definitions:

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Suitable strategies or methods employed to achieve a specific goal, especially within a professional or therapeutic context.

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The act of making it easier for individuals to establish relationships, networks, or links with others or necessary resources.

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A process that describes stages of gaining strength, awareness, and control over one's life, often used in personal development and community building.