Starting from short-run equilibrium,the following occurs: the U.S.dollar depreciates and wage rates rise.Moreover,the effect on the economy from the dollar depreciating is stronger than the effect on the economy from rising wage rates.What is the effect on the price level and Real GDP in the short run?
A) The price level falls and Real GDP falls.
B) The price level rises and Real GDP falls.
C) The price level falls and Real GDP rises.
D) The price level rises and Real GDP rises.
E) none of the above

Question

Quizplus · Accepted Answer

When the U.S. dollar depreciates, exports become cheaper for foreign buyers, leading to an increase in demand for U.S. goods, which increases Real GDP. Rising wage rates typically increase production costs, leading to higher prices. However, since the effect of the dollar depreciating is stronger, it not only offsets the negative impact of rising wage rates on Real GDP but also contributes to an overall increase in the price level due to higher demand. Thus, both the price level and Real GDP rise.

Starting from Short-Run Equilibrium,the Following Occurs: the U