Suppose the economy was in long-run equilibrium when a sudden decline in the stock market took place.What happens in the short run after the decline in the stock market?
A) Both the price level and real GDP rise.
B) The price level falls and real GDP does not change.
C) The price level does not change and real GDP falls.
D) Both the price level and real GDP fall.

Question

Quizplus · Accepted Answer

A decline in the stock market reduces wealth, leading to decreased consumer spending and investment, which causes both the price level and real GDP to fall in the short run.

Suppose the Economy Was in Long-Run Equilibrium When a Sudden