Suppose the Closed Economy Is in Long-Run Equilibrium

question 26

Multiple Choice

Suppose the closed economy is in long-run equilibrium. Technological change shifts the long-run aggregate-supply curve $80 billion to the right. At the same time, government purchases increase by $40 billion. If the MPC equals 0.75 and the crowding-out effect is $70 billion, what would we expect to happen in the long-run to real GDP and the price level?

• A) Both real GDP and the price level would be higher.
• B) Both real GDP and the price level would be lower.
• C) Real GDP would be higher but the price level would be lower.
• D) Real GDP would be higher but the price level would be the same.

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Definitions:

Smokeless Tobacco

A form of tobacco consumption that does not involve burning the tobacco, commonly used by chewing, sniffing, or placing the product between gum and cheek.

Pharmacological Methods

Techniques and processes used in the creation, administration, and study of drugs and their effects on the body.

Behavioral Methods

Techniques based on psychological principles of behavior that are used to modify human actions.

Teenagers

Individuals who are in the age group of 13 to 19 years, a period marked by various physical, emotional, and psychological changes.