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

question 88

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 the Canadian- dollar price of all imported raw materials. 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 falls and the price level rises; real GDP and the price level return to their original levels
• D)real GDP and the price level both rise; real GDP returns to its original level with a higher price level
• E)real GDP rises and the price level falls; real GDP returns to its original level with a lower price level

---

Definitions:

Average Variable Cost

The unit cost of producing each product, calculated by dividing the variable costs (costs that vary with output) by the number of units produced.

Long Run

A period of time in which all factors of production and costs are variable, allowing for adjustments in all inputs and outputs.

Long-Run Supply Curves

A graphical representation showing the relationship between the price of a good and the quantity supplied over a longer period, considering adjustments in factors of production.

Purely Competitive

A market structure characterized by many buyers and sellers, all of whom are price takers offering homogenous products.