Suppose a prolonged war in a country destroys 30 percent of the capital stock. In the long run, the price level will ________ as ________.
A) increase; short-run aggregate supply decreases
B) decrease; both long-run and short-run aggregate supply decrease
C) decrease; long-run aggregate supply decreases
D) remain unchanged; long-run aggregate supply decreases
E) increase; both long-run and short-run aggregate supply decrease

Question

Quizplus · Accepted Answer

In the long run, the destruction of capital stock reduces both long-run and short-run aggregate supply, leading to a higher price level due to decreased production capacity.

Suppose a Prolonged War in a Country Destroys 30 Percent