Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. If policymakers allow the economy to adjust to long-run equilibrium on its own, according to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run?
A) Output rises; prices are unchanged from the initial value.
B) Output and the price level are unchanged from their initial values.
C) Output falls; prices are unchanged from the initial value.
D) Prices fall; output is unchanged from its initial value.
E) Prices rise; output is unchanged from its initial value.
Correct Answer:
Verified
Q34: Movements along the aggregate supply curve are
Q35: Suppose the price level falls but suppliers
Q36: Which of the following will reduce the
Q37: According to the wealth effect, aggregate demand
Q38: The natural rate of output is the
Q40: When studying the short run, the assumption
Q42: According to the model of aggregate supply
Q44: If there is speculation that the economy
Q110: Make a list of things that would
Q120: Make a list of things that would
Unlock this Answer For Free Now!
View this answer and more for free by performing one of the following actions
Install the app to get 2 free unlocks
Unlock quizzes for free by uploading documents