If the Economy Is Operating on the Long-Run Aggregate Supply

question 47

Multiple Choice

If the economy is operating on the long-run aggregate supply curve, then expansionary fiscal policy will

• A) generate higher prices in the short run, but will induce aggregate supply to increase in the long run.
• B) generate an increase in real GDP and higher prices in both the short run and the long run.
• C) generate an increase in real GDP without higher prices in the short run, but then real GDP will return to its long-run level, and the price level will increase.
• D) generate an increase in real GDP and higher prices in the short run, but then real GDP will decrease to its long-run level, and the price level will increase some more.

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Definitions:

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