Starting from a Short-Run Equilibrium Greater Than the Natural Rate

question 120

Multiple Choice

Starting from a short-run equilibrium greater than the natural rate of output, as the economy returns to a long-run equilibrium:

• A) both output and the price level will increase.
• B) output will decrease, but the price level will increase.
• C) output will increase, but the price level will decrease.
• D) both output and the price level will decrease.

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Definitions:

Public Choice Theory

The economic analysis of government decision making, politics, and elections.

Government Failure

A situation where government intervention in the economy creates inefficiencies and leads to a misallocation of resources.

Unfunded Liability

Obligations or debts for which sufficient funds have not been set aside, particularly relevant in the context of pensions and benefits.

Medicare

A federal health insurance program in the United States for people who are 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease.