In the long run,an increase in the price level:
A) increases output prices relative to input prices.
B) increases the profit margins of many producers.
C) increases RGDP supplied.
D) none of the above.

Question

Quizplus · Accepted Answer

In the long run, the increase in the price level does not affect the relative prices of inputs and outputs, as all prices adjust proportionally. It also does not affect the profit margins of producers in a significant way, as their costs and revenues adjust together. The only long-run effect of an increase in the price level is a corresponding increase in the nominal GDP, but not necessarily in the real GDP as it depends on whether the increase is due to an increase in output or just due to inflation. Therefore, none of the above choices are correct.

In the Long Run,an Increase in the Price Level