Suppose the economy is in long-run equilibrium. In a short span of time, there is a large influx of skilled immigrants, a major new discovery of oil, and a major new technological advance in electricity production. In the short run, what would we expect to happen?
A) The price level will rise, and real GDP will 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 and real GDP will both fall.

Question

Quizplus · Accepted Answer

The influx of skilled immigrants and the new technological advance in electricity production would increase productivity and shift the aggregate supply curve to the right, leading to an increase in real GDP. The discovery of new oil reserves would lead to a decrease in production costs and shift the aggregate supply curve further to the right, leading to a decrease in the price level. Therefore, in the short run, we would expect the price level to fall and real GDP to rise.

Suppose the Economy Is in Long-Run Equilibrium