Suppose the economy is producing at the natural rate of output.A decrease in consumer and business confidence will cause ________ in real GDP in the long run and ________ in the aggregate price level in the long run,everything else held constant.
A)an increase; an increase
B)a decrease; a decrease
C)no change; an increase
D)no change; a decrease

Question

Quizplus · Accepted Answer

In the long run, the economy self-corrects to the natural rate of output, so real GDP remains unchanged. However, a decrease in confidence reduces aggregate demand, leading to a lower aggregate price level.

Suppose the Economy Is Producing at the Natural Rate of Output.A