Suppose the Economy Is Initially in Long-Run Equilibrium and Then

question 29

Multiple Choice

Suppose the economy is initially in long-run equilibrium and then it experiences a supply shock in the form of sharply higher energy prices.How will the short-run and long-run aggregate supply curves be affected?  

• A) The short-run aggregate supply curve shifts leftward, but the long-run aggregate supply curve does NOT shift. 
• B) The short-run aggregate supply curve shifts rightward, and the long-run aggregate supply curve shifts rightward. 
• C) The short-run aggregate supply curve does NOT shift, and the long-run aggregate supply curve shifts rightward. 
• D) The short-run aggregate supply curve shifts rightward, but the long-run aggregate supply curve does NOT shift.

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Definitions:

Interest Rate

The cost of borrowing money or the return on investment for savings, typically expressed as a percentage of the principal amount per period.

Money Supply

The total amount of monetary assets available in an economy at a specific time, including cash, bank deposits, and other liquid assets.

Money Demand Curve

A graph showing the relationship between the quantity of money that people hold and the interest rate, indicating how the demand for money changes as interest rates vary.

Price Level

The general level of prices for goods and services in an economy, often measured by a price index.