Suppose That the Economy Is in Long-Run Equilibrium and the Central

question 165

Multiple Choice

Suppose that the economy is in long-run equilibrium and the central bank decided to engage in unexpected expansionary policy by increasing the money supply. If we assume rational expectations, which of the following statements is correct about the effect of expansionary policy in the long run?

• A) The unemployment rate will increase, real GDP will increase and the price level will increase.
• B) The unemployment rate will decrease, real GDP will decrease and the price level will decrease.
• C) The unemployment rate will remain unchanged, real GDP will remain unchanged and the price level will increase.
• D) The unemployment rate will remain unchanged, real GDP will remain unchanged and the price level will decrease.

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Definitions:

Differentiation Strategy

A business approach in which a company seeks to distinguish its products or services from competitors through unique features.

Strategic Planning

The process of defining a company's strategy or direction and making decisions on allocating resources to pursue this strategy, including its capital and people.

Competitive Advantage

A condition that enables a company to operate in a more efficient or otherwise higher-quality manner than the companies it competes with.

Resources

The total means available for economic and operational development, such as natural resources, personnel, and capital.