Suppose the Economy Is Initially in Long-Run Equilibrium

question 32

Multiple Choice

Suppose the economy is initially in long-run equilibrium. Which of the following events leads to a decrease in the price level and an increase in real GDP in the short run?

• A) A decrease in health insurance premiums paid by firms raises the cost of employing labor
• B) An increase in government transfer payments
• C) An increase in the cost of a key input such as oil
• D) A sharp fall in stock market prices

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Definitions:

Clayton Act

A United States antitrust law passed in 1914, aimed at promoting competition by preventing unfair practices such as price discrimination and exclusive dealing agreements.

Sherman Act

The Sherman Act is a landmark U.S. antitrust law enacted in 1890 to combat anti-competitive practices and promote fair competition.

Federal Trade Commission Act

A United States federal law enacted in 1914 to promote consumer protection and eliminate and prevent anticompetitive business practices.

Vertical Merger

The joining of two firms engaged in different parts of an industrial process, or the joining of a manufacturer and a retailer.