Suppose the economy is in long-run equilibrium.Concerns about pollution cause the government to significantly restrict the production of electricity.At the same time,the value of the dollar falls.What would we expect to happen in the short run?
A) Real GDP will rise,and the price level might rise,fall,or stay the same.
B) Real GDP will fall,and the price level might rise,fall,or stay the same.
C) The price level will rise,and real GDP might rise,fall,or stay the same.
D) The price level will fall,and real GDP might rise,fall,or stay the same.

Question

Quizplus · Accepted Answer

The restriction on electricity production reduces aggregate supply, leading to higher prices. The fall in the dollar increases net exports, boosting aggregate demand. Both effects tend to increase the price level, but the impact on real GDP is uncertain.

Suppose the Economy Is in Long-Run Equilibrium