In the long run in the Keynesian model,a beneficial supply shock would leave the economy with a higher level of output,but also a ________ real interest rate and a ________ price level.
A)higher; lower
B)lower; higher
C)lower; lower
D)higher; higher

Question

Quizplus · Accepted Answer

In the Keynesian model, a beneficial supply shock increases output and reduces prices due to increased efficiency or reduced costs of production. The increase in supply leads to lower prices. With higher output, the demand for money may increase, but the overall effect on the real interest rate tends to be downward as the economy adjusts to the new equilibrium, making the correct answer lower real interest rate and lower price level.

In the Long Run in the Keynesian Model,a Beneficial Supply