Suppose the Economy Is in Long-Run Equilibrium

question 112

Multiple Choice

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions, what would we expect to happen in the short run?

• A) Real GDP will rise, and the price level might rise, fall, or stay the same.
• B) Real GDP will fall, and the price level might rise, fall, or stay the same.
• C) The price level will rise, and real GDP might rise, fall, or stay the same.
• D) The price level will fall, and real GDP might rise, fall, or stay the same.

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Definitions:

Pure Competition

A market structure characterized by a large number of small firms, a homogeneous product, and easy entry and exit, leading to perfect competitive markets.

Differentiated Oligopoly

A market structure where a few firms dominate, but differentiate their products through branding, quality, or other means to compete.

Soft Drink Industry

A sector of the beverage industry that produces and sells non-alcoholic drinks such as sodas, carbonated waters, and flavored drinks.

Aluminum Industry

A sector of the economy focused on the production, processing, and distribution of aluminum, a lightweight metal used in various applications.