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

An increase in the price level from 100 to 125 will cause a movement along the aggregate supply curve from Schedule (a) to Schedule (b). This movement will result in a decrease in the equilibrium level of real output from $500 to $500. In the long run, the economy will adjust, and the aggregate supply curve will shift back to its initial position, Schedule (a). Therefore, the long-run equilibrium level of real output will remain at $500.

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