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Suppose That the Economy Is at Full Employment, the Price

Question 160

Multiple Choice

Suppose that the economy is at full employment, the price level is 100, and the multiplier is 2. Investment increases by $100 billion. In the short run, the price level ________ because ________.


A) rises; the economy returns to full employment
B) rises; the short-run aggregate supply curve is upward sloping
C) remains at 100; the aggregate demand curve shifts horizontally, which keeps the price level constant
D) remains at 100; the economy initially moves to an above full-employment equilibrium. To return to full employment, aggregate demand decreases
E) falls; investment only increases as the price level falls

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