Suppose the economy is in long-run equilibrium. In a short span of time, there is a sharp increase in the minimum wage, a major new discovery of oil, a large influx of immigrants, and new environmental regulations that reduce electricity production. In the short run, what would we expect to happen?
A)The price level to rise and real GDP will both fall.
B)The price level will fall, and real GDP will rise.
C)The price level and real GDP will both stay the same.
D)The price level will rise, fall, or stay the same, and the real GDP will rise, fall, or stay the same.

Question

Quizplus · Accepted Answer

The four events described could affect the economy in different ways, so it's difficult to predict with certainty what would happen in the short run. The increase in the minimum wage could lead to higher costs for employers and higher prices for consumers, potentially pushing the price level up. The major new discovery of oil could lead to lower energy prices, pushing the price level down. The large influx of immigrants could increase the labor force and potentially increase output, pushing real GDP up. The new environmental regulations could lead to higher costs for electricity production and potentially decrease output, pushing real GDP down. Overall, it's likely that the short-run effects of these events would be complex and varied, and both the price level and real GDP could rise, fall, or stay the same depending on the relative strength of these forces.

Suppose the Economy Is in Long-Run Equilibrium