The Economy Is in Long-Run Equilibrium

question 22

Multiple Choice

The economy is in long-run equilibrium. Suppose that automatic teller machines become cheaper and more convenient to use, and as a result the demand for money falls. Other things being equal, what would we expect will happen to the price level and real GDP in the short and long run?

• A) In the short run, the price level and real GDP would rise, but in the long run they would both be unaffected.
• B) In the short run, the price level and real GDP would rise, but in the long run the price level would rise and real GDP would be unaffected.
• C) In the short run, the price level and real GDP would fall, but in the long run they would both be unaffected.
• D) In the short run, the price level and real GDP would fall, but in the long run the price level would fall and real GDP would be unaffected.

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Definitions:

Inventory

The total amount of goods and materials held by a business for the purpose of resale or production.

Non-inventory

Refers to items or services sold by a business that are not kept in inventory, such as consulting services.

Allowance Method

An accounting technique used to estimate and account for doubtful accounts receivable.

Uncollectible Accounts Expense

An expense reported on the income statement, pertaining to the debt owed to a company that is unlikely to be recovered.