Consider an economy initially in a long-run equilibrium. A positive AS shock will _____ the price level and _____ output in the short run. In the long run, the price level will _____ and output _____. a. Increase; increase; return to its initial level; will be restored to potential output. b. Decrease; increase; decrease further; will be restored to potential output. c. Decrease; increase; return to its initial level; will be restored to potential output. d. Decrease; decrease; decrease further; will decrease further. e. Increase; increase; decrease; will be restored to potential output.
Consider an economy initially in a long-run equilibrium. A positive AS shock will _____ the price level and _____ output in the short run. In the long run, the price level will _____ and output _____. a. Increase; increase; return to its initial level; will be restored to potential output. b. Decrease; increase; decrease further; will be restored to potential output. c. Decrease; increase; return to its initial level; will be restored to potential output. d. Decrease; decrease; decrease further; will decrease further. e. Increase; increase; decrease; will be restored to potential output.
Chapter16: Macro Policy Debate: Active Or Passive?
Section: Chapter Questions
Problem 1.2P
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Consider an economy initially in a long-run equilibrium. A positive AS shock will _____ the price level and _____ output in the short run. In the long run, the price level will _____ and output _____.
a.
Increase; increase; return to its initial level; will be restored to potential output.
b.
Decrease; increase; decrease further; will be restored to potential output.
c.
Decrease; increase; return to its initial level; will be restored to potential output.
d.
Decrease; decrease; decrease further; will decrease further.
e.
Increase; increase; decrease; will be restored to potential output.
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