In the short run, if the price level rises, then the overall economy can temporarily produce beyond its nominal capacity. One reason for this is that
A) workers can be switched from counted to uncounted production.
B) existing capital equipment can be used more intensively.
C) wage rates rise almost simultaneously with the price level.
D) the unemployment rate usually rises dramatically along with the price level.

Question

Quizplus · Accepted Answer

When the price level rises in the short run, existing capital equipment can be used more intensively to increase production temporarily. However, this is only possible in the short run as in the long run, the economy will adjust to the inflationary pressures and return to potential output. The other options are less likely to cause an increase in production capacity in the short run.

In the Short Run, If the Price Level Rises, Then