Suppose the full employment level of real output (Q) for a hypothetical economy is $500, the price level (P) initially is 100, and prices and wages are ﬂexible both upward and downward. Refer to the
Accompanying short-run aggregate supply schedules. In the long run, an increase in the price level
From 100 to 125 will
A) increase real output from $500 to $560.
B) decrease real output from $500 to $440.
C) change the aggregate supply schedule from (a) to (c) and result in an equilibrium level of real output of $560.
D) change the aggregate supply schedule from (a) to (b) and result in an equilibrium level of real output of $500.

Question

Suppose the full employment level of real output (Q) for a hypothetical economy is $500, the price level (P) initially is 100, and prices and wages are ﬂexible both upward and downward. Refer to the
Accompanying short-run aggregate supply schedules. In the long run, an increase in the price level
From 100 to 125 will
A) increase real output from $500 to $560. 
B) decrease real output from $500 to $440. 
C) change the aggregate supply schedule from (a) to (c) and result in an equilibrium level of real output of $560. 
D) change the aggregate supply schedule from (a) to (b) and result in an equilibrium level of real output of $500.

Quizplus · Accepted Answer

The Answer is D

Suppose the Full Employment Level of Real Output (Q) for a Hypothetical