If the Long-Run Equilibrium of an Economy Is Disrupted by an Unexpected

question 55

Multiple Choice

If the long-run equilibrium of an economy is disrupted by an unexpected shift to a more expansionary monetary policy, the policy shift will

• A) reduce aggregate demand and real output in the short run.
• B) lead to a higher rate of unemployment in the short run.
• C) stimulate real output in the short run, but in the long run, its primary impact will be on the general level of prices.
• D) lead to an increase in the general level of prices in the short run, but in the long run, its primary impact will be an expansion in real output.

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Definitions:

GDP

Gross Domestic Product, a measure of the economic performance of a country, calculating the total value of all goods and services produced over a specific time period.

Gross Investment

The total amount spent on purchases of new capital assets and replacement of depreciated assets within a specified period.

Net Investment

The total spending on new capital minus the replacement of depreciated capital, indicating the actual addition to the capital stock in an economy.

GDP Deflator

An economic metric that converts the gross domestic product (GDP) from current market prices into constant dollar terms in order to measure the real growth of an economy, excluding the effect of inflation.