Suppose that the current price level is 110, real GDP is $100 billion, and long-run aggregate supply is $95 billion. We can conclude that
A) the price level will fall until long-run aggregate supply shifts to $100 billion.
B) the price level will fall and input prices will rise until real GDP pulls long-run aggregate supply up to $100 billion.
C) input prices will rise until real GDP is $95 billion.
D) aggregate demand will increase until both short-run and long-run aggregate supply equal $100 billion.

Question

Quizplus · Accepted Answer

Input prices will rise in response to the higher demand that is pushing real GDP above the long-run aggregate supply, leading to a decrease in real GDP back to the long-run aggregate supply level of $95 billion.

Suppose That the Current Price Level Is 110, Real GDP