Suppose the full-employment level of real output (Q)for a hypothetical economy is $500 and that the price level (P)initially is 100.Use the following short-run aggregate supply schedules to answer the next question.

-Refer to the information above.If the price level unexpectedly declines from 100 to 75,the level of real output in the short run will:
A) rise from $500 to $560.
B) fall from $500 to $440.
C) fall from $560 to $500.
D) rise from $440 to $500.

Question

Suppose the full-employment level of real output (Q)for a hypothetical economy is $500 and that the price level (P)initially is 100.Use the following short-run aggregate supply schedules to answer the next question.
 
-Refer to the information above.If the price level unexpectedly declines from 100 to 75,the level of real output in the short run will:
A) rise from $500 to $560. 
B) fall from $500 to $440. 
C) fall from $560 to $500. 
D) rise from $440 to $500.

Quizplus · Accepted Answer

In the short run, a decline in the price level typically leads to a decrease in real output due to reduced consumer spending and investment, causing the level of real output to fall from $500 to $440.

Suppose the Full-Employment Level of Real Output (Q)for a Hypothetical