Suppose the economy is in long-run equilibrium. If there is a sharp increase in the stock market combined with a significant number of skilled workers retiring, what would we expect to happen in the short run?
A) Real GDP will rise, and the price level might rise, fall, or stay the same.
B) Real GDP will fall, and the price level might rise, fall, or stay the same.
C) The price level will rise, and real GDP might rise, fall, or stay the same.
D) The price level will fall, and real GDP might rise, fall, or stay the same.

Question

Quizplus · Accepted Answer

A sharp increase in the stock market can boost consumer and business confidence, leading to increased spending and investment, which can push the price level up. The retirement of a significant number of skilled workers can reduce the economy's productive capacity, affecting real GDP in various ways depending on how demand adjusts, making C the correct choice as it captures the potential for a price level increase while acknowledging the uncertain impact on real GDP.

Suppose the Economy Is in Long-Run Equilibrium