Scenario 14-2
The economy is in long-run equilibrium. Suddenly, due to corporate scandals, a recession experienced by a major trading partner, and the loss of confidence among policymakers, citizens become pessimistic concerning the future. They maintain this level of pessimism for a long time.
-Refer to the Scenario 14-2. How does the new long-run equilibrium differ from the original one?
A) Both the price level and real GDP are higher.
B) Both the price level and real GDP are lower.
C) The price level is the same and real GDP is lower.
D) The price level is lower and real GDP is the same.

Question

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The Answer of Scenario 14-2
The economy is in long-run equilibrium. Suddenly, due to corporate scandals, a recession experienced by a major trading partner, and the loss of confidence among policymakers, citizens become pessimistic concerning the future. They maintain this level of pessimism for a long time.
-Refer to the Scenario 14-2. How does the new long-run equilibrium differ from the original one?
A) Both the price level and real GDP are higher.
B) Both the price level and real GDP are lower.
C) The price level is the same and real GDP is lower.
D) The price level is lower and real GDP is the same.

Scenario 14-2 The Economy Is in Long-Run Equilibrium. Suddenly, Due to Corporate