Suppose the current situation is such that the price level is 120, real GDP is $14 trillion, and long-run aggregate supply is $13.6 trillion. We can conclude that
A) the price level will fall until long-run aggregate supply shifts to $14 trillion.
B) the price level will fall and input prices will rise until real GDP pulls long-run aggregate supply up to $14 trillion.
C) input prices will rise until real GDP is $13.6 trillion.
D) aggregate demand will increase until both short-run and long-run aggregate supply equal $14 trillion.

Question

Quizplus · Accepted Answer

The economy is producing above its long-run potential (real GDP is $14 trillion, while long-run aggregate supply is $13.6 trillion), which typically leads to upward pressure on input prices, causing real GDP to decrease to the long-run aggregate supply level.

Suppose the Current Situation Is Such That the Price Level