Starting from long-run equilibrium, without policy intervention, the long-run impact of a temporary adverse supply shock is that prices will:
A)be permanently higher, and output will be restored to the natural rate.
B)return to the old level, and output will be restored to the natural rate.
C)be permanently higher, and output will be permanently lower.
D)return to the old level, but output will be permanently lower.

Question

Quizplus · Accepted Answer

In the long run, prices return to their original level as the economy self-corrects, and output returns to the natural rate due to flexible prices and wages.

Starting from Long-Run Equilibrium, Without Policy Intervention, the Long-Run Impact