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, a fall in the price level from
100 to 75 will
A) decrease real output from $500 to $440.
B) increase real output from $500 to $620.
C) change the aggregate supply schedule from (a) to (c) and produce an equilibrium level of real output of $500.
D) change the aggregate supply schedule from (a) to (b) and produce 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, a fall in the price level from
100 to 75 will
A) decrease real output from $500 to $440. 
B) increase real output from $500 to $620. 
C) change the aggregate supply schedule from (a) to (c) and produce an equilibrium level of real output of $500. 
D) change the aggregate supply schedule from (a) to (b) and produce an equilibrium level of real output of $500.

Quizplus · Accepted Answer

The Answer is C

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