Suppose the Economy Is in Long-Run Equilibrium

question 92

Multiple Choice

Suppose the economy is in long-run equilibrium. In a short span of time, there is a sharp increase in the minimum wage. In the short run, what would we expect to happen?

• A) the price level to rise, and real GDP to fall
• B) the price level to fall, and real GDP to remain unchanged
• C) the price level to remain unchanged, and real GDP to fall
• D) the price level to fall, and the real GDP to rise the same

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Definitions:

Pure Chase Strategy

A demand matching or production strategy where output is adjusted to match the demand exactly, with no inventory buffer.

Demand Requirements

The specific quantities of products or services that a market or customer base needs over a particular period.

Pure Level Strategy

A production strategy where the output levels are kept constant despite fluctuating demand, aiming at minimizing changes in production rates.