Suppose that the economy begins at a long-run equilibrium. Which of the following raises the price level and decrease real GDP in the short run?
A) an increase in the price of oil that decreases aggregate supply
B) a decrease in the quantity of money
C) an increase in the stock of capital that increases aggregate supply
D) an increase in government expenditures

Question

Quizplus · Accepted Answer

An increase in the price of oil would decrease aggregate supply. This would shift the short-run aggregate supply curve leftward. As a result, price levels would rise and real GDP would decrease. Factor prices would also increase.

Suppose That the Economy Begins at a Long-Run Equilibrium