Suppose Canada's Economy Is in a Long-Run Equilibrium with Real

question 15

Multiple Choice

Suppose Canada's economy is in a long-run equilibrium with real GDP equal to potential output.Now suppose there is an increase in world demand for Canada's goods.In the short run,________.In the long run,________.

• A)real GDP and the price level both fall; real GDP is below its original level with a lower price level
• B)real GDP and the price level both rise; real GDP is above its original level with a higher price level
• C)real GDP and the price level both rise; real GDP returns to its original level with a higher price level
• D)real GDP rises and the price level falls; real GDP returns to its original level with a lower price level
• E)real GDP falls and the price level rises; real GDP is below its original level with a higher price level

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Definitions:

Market Price

The prevailing price at which a good or service is bought and sold in a competitive marketplace.

Market Price

The current value at which a good or service can be bought or sold in a given market.

Short-Run Equilibrium

A state in which supply equals demand within a particular market, specifically under the assumption that some conditions (like input prices) are fixed in the short term.

Marginal Cost

The charge for the production of one more unit of a product or service.