Which of the following would cause prices and real GDP to rise in the short run?
A)an increase in the expected price level
B)an increase in the money supply
C)a decrease in the capital stock
D)an import tariff

Question

Quizplus · Accepted Answer

An increase in the money supply would cause prices to rise because there is more money in circulation chasing the same amount of goods, leading to a demand-pull inflation. Additionally, real GDP would rise in the short run because firms can now invest more in projects due to the availability of more funds. A decrease in the capital stock (choice C) would likely cause prices to rise because there would be fewer goods and services available, leading to a supply shock that increases prices. However, this would also likely cause real GDP to decrease in the short run due to a reduction in production capacity. An increase in the expected price level (choice A) may cause firms to raise prices in anticipation of inflation, but it does not increase the money supply or aggregate demand, so it would not lead to an increase in real GDP. An import tariff (choice D) may protect domestic industries from foreign competition, but it would likely cause prices to rise due to higher production costs and reduced competition, leading to a supply shock that decreases real GDP in the short run.

Which of the Following Would Cause Prices and Real GDP