If the Economy Is in Long Run Equilibrium and Then

question 6

Multiple Choice

If the economy is in long run equilibrium and then aggregate demand increases, in the long run the increase in aggregate demand means that the

• A) price level will be higher but real GDP will be unaffected.
• B) real GDP will be larger but the price level will be unaffected.
• C) the price level will be higher and real GDP will be larger.
• D) neither the price level nor real GDP will be unaffected.

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Definitions:

Growing Perpetuity

A type of investment that provides an infinite series of cash flows that grow at a consistent rate indefinitely.

Generalization

The process of forming general concepts from specific instances by abstracting common properties.

Expected Growth Rate

The anticipated rate at which an investment, company, or economy will grow in a specific period.

Required Return

The minimum expected return by investors for investing in a particular security or project, considering the risk involved.