Suppose the Current Situation Is Such That the Price Level

question 3

Multiple Choice

Suppose the current situation is such that the price level is 120,real GDP is $13 trillion,and GDP along the long-run aggregate supply curve is $12.6 trillion.What will take place to restore the long-run equilibrium?

• A) The price level will fall until long-run aggregate supply increases to $13 trillion.
• B) The price level will fall and money wage rates will rise until real GDP along the long-run aggregate supply curve is $13 trillion.
• C) Money wage rates will rise until real GDP is $12.6 trillion.
• D) Aggregate demand will increase until both short-run and long-run aggregate supply equal $13 trillion.

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Definitions:

Linearly Related

Refers to a correlation between two variables in which a variation in one is linked to a corresponding change in the other.

Interaction Term

In statistical models, a variable created by multiplying two or more variables together to investigate if the effect of one variable on the dependent variable is different at different levels of the other variable.

Coefficient

A numerical constant placed at the beginning and serving as a multiplier to a variable in an algebraic formula.

Nominal Variables

Variables that represent categories without any inherent order or ranking among them.