Suppose the economy is in long-run equilibrium.If there is an increase in government purchases at the same time there is a large increase in the price of oil,then in the short-run
A)real GDP will rise and the price level might rise,fall,or stay the same.
B)real GDP will fall and the price level might rise,fall,or stay the same.
C)the price level will rise,and real GDP might rise,fall,or stay the same.
D)the price level will fall,and real GDP might rise,fall,or stay the same.

Question

Quizplus · Accepted Answer

An increase in government purchases will shift the aggregate demand curve to the right, leading to an increase in both real GDP and the price level. However, at the same time, a large increase in the price of oil will likely shift the aggregate supply curve to the left, leading to an increase in the price level and a decrease in real GDP. The net effect depends on the relative magnitude of these shifts, but the most likely outcome is an increase in the price level and uncertainty about the impact on real GDP.

Suppose the Economy Is in Long-Run Equilibrium