The Economy Is in Long-Run Equilibrium When There Is an Incorrectly

question 63

Multiple Choice

The economy is in long-run equilibrium when there is an incorrectly anticipated increase in aggregate demand brought about by expansionary monetary policy.Specifically,aggregate demand increases by more than people anticipate (bias downward) .According to new classical theory,the price level will __________ and Real GDP will __________ in the short run.In the long run,the price level will be __________ than it was before aggregate demand increased.

• A) rise; fall; higher
• B) rise; rise; higher
• C) fall; rise; lower
• D) fall; rise; higher
• E) rise; rise; lower

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Definitions:

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