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.If the price level unexpectedly declines from 100 to 75, the level of real output in the short run will:
A)rise from $500 to $560.
B)fall from $500 to $440.
C)fall from $560 to $500.
D)rise from $440 to $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.If the price level unexpectedly declines from 100 to 75, the level of real output in the short run will:
A)rise from $500 to $560. 
B)fall from $500 to $440. 
C)fall from $560 to $500. 
D)rise from $440 to $500.

Quizplus · Accepted Answer

The short-run aggregate supply schedule shows that at a price level of 75, the quantity of real output supplied is only $440. This is below the full-employment level of output of $500, indicating that there will be a temporary decrease in real output in the short run. Therefore, the correct option is B: fall from $500 to $440.

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