Suppose the Economy Is Initially in Long-Run Equilibrium

question 27

Multiple Choice

Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?

• A) Prices rise; output falls.
• B) Prices fall; output rises.
• C) Prices rise; output rises.
• D) Prices fall; output falls.

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Definitions:

Pen-based Computers

Computing devices primarily operated with a stylus or digital pen rather than a traditional keyboard or mouse.

Product Life Cycle

Stages that products in a marketplace pass through over time.

Window of Opportunity

A specific period during which the conditions are right for the execution of a task or the attainment of a goal.

Capital

Financial assets or the financial value of assets, such as cash and buildings, that are utilized to start or maintain a business.