Suppose the Economy Is in Long-Run Equilibrium

question 68

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?

• A) In the short run, real GDP will rise, and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same, but real GDP will be unaffected.
• B) In the short run, real GDP will fall, and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same, but real GDP will be unaffected.
• C) In the short run, real GDP will rise, and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same, but real GDP will be lower.
• D) In the short run, real GDP will fall, and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same, but real GDP will be lower.

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Definitions:

Direct Labor-Hours

The total hours worked by employees directly involved in the manufacturing process or providing services, used as a basis for allocating labor costs.

Direct Materials Cost

The expenditure on raw materials that are directly incorporated into a manufactured item.

Activity-Based Costing

A pricing technique that allocates overhead and indirect expenses to corresponding goods and services according to their consumption of resources.

Direct Labor-Hours

A measure of the total time workers spend directly manufacturing a product, often used in costing and operational efficiency analysis.