Suppose the Economy Is in Long-Run Equilibrium

question 215

Multiple Choice

Suppose the economy is in long-run equilibrium. In a short span of time, there is a decline in the money supply, a tax increase, a pessimistic revision of expectations about future business conditions, and a rise in the value of the dollar. In the short run, what would we expect to happen?

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

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