What could create an increase in the price level and a decrease in real GDP in the short run?
A) an increase in the money supply
B) a decrease in taxes
C) an increase in stock prices
D) bad weather in agriculture producing provinces

Question

Quizplus · Accepted Answer

Bad weather in agriculture producing provinces would decrease the supply of agricultural products, causing prices to rise. This would create inflation, which would cause an increase in the price level. However, since the supply of agricultural products has decreased, this would also decrease real GDP as the economy is producing less output.

What Could Create an Increase in the Price Level and a Decrease