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.In the long run,an increase in the price level from 100 to 125 will:
A) increase real output from $500 to $560.
B) decrease real output from $500 to $440.
C) change the aggregate supply schedule from (a)to (c)and result in an equilibrium level of real output of $560.
D) change the aggregate supply schedule from (a)to (b)and result in an equilibrium level of real output of $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.In the long run,an increase in the price level from 100 to 125 will:
A) increase real output from $500 to $560. 
B) decrease real output from $500 to $440. 
C) change the aggregate supply schedule from (a)to (c)and result in an equilibrium level of real output of $560. 
D) change the aggregate supply schedule from (a)to (b)and result in an equilibrium level of real output of $500.

Quizplus · Accepted Answer

In the long run, the aggregate supply is vertical, meaning that changes in the price level do not affect the real output. Therefore, the real output remains at $500, and the aggregate supply schedule shifts from (a) to (b).

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