Suppose the economy is in long-run equilibrium.If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers,then we would expect that in the short run,
A)real GDP will rise and the price level might rise, fall, or stay the same.In the long-run, real GDP will rise and the price level might rise, fall, or stay the same.
B)the price level will fall, and real GDP might rise, fall, or stay the same.In the long-run, real GDP and the price level will be unaffected.
C)the price level will rise, and real GDP might rise, fall, or stay the same.In the long run, real GDP will rise and the price level will fall.
D)the price level will fall, and real GDP might rise, fall, or stay the same.In the long run, real GDP will rise and the price level will fall.

Question

Quizplus · Accepted Answer

A decline in the stock market typically leads to a decrease in consumption and investment spending, which will reduce aggregate demand (AD). At the same time, an increase in skilled workers may increase aggregate supply (AS) in the short run. Thus, the economy will experience a short-run equilibrium at a lower price level and possibly lower real GDP. However, in the long run, the increase in skilled workers will increase the economy's potential output, leading to an increase in AS, and the economy will return to its long-run equilibrium with a lower price level and higher real GDP.

Suppose the Economy Is in Long-Run Equilibrium