Suppose the Current Situation Is Such That the Price Level

question 29

Multiple Choice

Suppose the current situation is such that the price level is 120, real GDP is $17 trillion, and GDP along the long-run aggregate supply curve is $16.6 trillion. What will take place to restore the long-run equilibrium?

• A) The price level will fall until long-run aggregate supply increases to $17 trillion.
• B) The price level will fall and money wage rates will rise until real GDP along the long-run aggregate supply curve is $17 trillion.
• C) Money wage rates will rise until real GDP reaches $16.6 trillion.
• D) Aggregate demand will increase until both short-run and long-run aggregate supply equal $17 trillion.

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Definitions:

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations with its current assets.

Cash Ratio

A liquidity metric that measures a company's ability to pay off its short-term liabilities with its cash and cash equivalents alone.

Price-Earnings Ratio

The price-earnings ratio (P/E ratio) measures a company's current share price relative to its per-share earnings, used by investors to evaluate the valuation and potential for future earnings growth of a stock.

Earnings Per Share

A company's profit divided by its number of common outstanding shares, serving as an indicator of the company’s profitability.