Suppose the economy is at a short-run equilibrium GDP that lies below potential GDP. Which of...
Suppose the economy is at a short-run equilibrium GDP that lies below potential GDP. Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP?
A) Output will decrease.
B) Prices will increase.
C) Unemployment will rise.
D) Short-run aggregate supply will shift to the right.
Homework Answers
A. Output will decrease
In short run equilibrium the economy present aggregate demand and aggregate supply main shift from the equilibrium GDP output level. In long run there will common adjustment using a combination of fiscal and monetary expansion on by contraction so that long run equilibrium is kept.
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