Suppose That the Economy Is in Long-Run Equilibrium at Full

question 80

Multiple Choice

Suppose that the economy is in long-run equilibrium at full employment levels of real GDP. In the long run, if the money supply increases, we would expect _____ in the price level and _____ in real GDP.

• A) an increase; no change
• B) an increase; an increase
• C) a decrease; no change
• D) no change; an increase

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Definitions:

Coke

A fuel with a high carbon content and few impurities, made by heating coal in the absence of air, used mainly in steel manufacturing.

Income Effect

The alteration in the income of either a person or an economy and the impact this change has on the demand for a specific product or service.

Inferior Good

A type of good for which demand decreases as the income of the consumer increases, opposite to normal goods.

Substitution Effect

The change in consumption patterns due to a change in the price of goods, leading consumers to substitute one good for another.