The quantity of real GDP supplied will decrease in both the short run and long run when the price level falls.

Question

Quizplus · Accepted Answer

A fall in the price level typically leads to an increase in the quantity of real GDP supplied, as it increases the purchasing power of consumers and firms, leading to increased demand and production. This phenomenon is known as the "wealth effect" and occurs in the short run. In the long run, prices are flexible, and firms can adjust their production levels to meet changes in demand, so the quantity of real GDP supplied is not necessarily affected by changes in the price level. In fact, in the long run, changes in the price level are more likely to be driven by changes in the quantity of real GDP supplied, rather than the other way around.

The Quantity of Real GDP Supplied Will Decrease in Both