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Suppose That the Economy Is at Full Employment, the Price

Question 146

Multiple Choice

Suppose that the economy is at full employment, the price level is 100, and the multiplier is 2.Investment increases by $100 billion.In the short run, the price level _______ because _______.


A) falls; investment only increases as the price level falls
B) remains at 100; the economy initially moves to an above full- employment equilibrium.To return to full employment, aggregate demand decreases
C) rises; the economy returns to full employment
D) remains at 100; the aggregate demand curve shifts horizontally, which keeps the price level constant
E) rises; the short- run aggregate supply curve is upward sloping

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