Suppose the economy is in long-run equilibrium.Senator Aviary succeeds in getting a major new highway project for his state.At the same time,Senator Green succeeds in getting major new restrictions on logging enacted.In the short run,we would expect
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.

Question

Quizplus · Accepted Answer

The highway project increases aggregate demand, while logging restrictions decrease aggregate supply. This combination is likely to increase the price level, while the effect on real GDP is uncertain.

Suppose the Economy Is in Long-Run Equilibrium