Suppose the full employment level of real output (Q) for a hypothetical economy is $500, the price level (P) initially is 100, and prices and wages are ﬂexible both upward and downward. Refer to the
Accompanying short-run aggregate supply schedules. 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, the price level (P) initially is 100, and prices and wages are ﬂexible both upward and downward. Refer to the
Accompanying short-run aggregate supply schedules. 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

According to the accompanying short-run aggregate supply schedules, when the price level declines from 100 to 75, the quantity of real output supplied declines from 550 to 450, which means that the level of real output in the short run would fall from $500 to $440.

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