Suppose the current situation is such that the price level is 120, real GDP is $13 trillion, and GDP along the long-run aggregate supply curve is $12.6 trillion. What will take place to restore the long-run equilibrium?
A) The price level will fall and money wage rates will rise until real GDP along the long-run aggregate supply curve is $13 trillion.
B) The price level will fall until long-run aggregate supply increases to $13 trillion.
C) Aggregate demand will increase until both short-run and long-run aggregate supply equal $13 trillion.
D) Money wage rates will rise until real GDP is $12.6 trillion.

Question

Quizplus · Accepted Answer

Money wage rates will rise, causing production costs to increase, which will reduce real GDP to the long-run aggregate supply level of $12.6 trillion, restoring equilibrium.

Suppose the Current Situation Is Such That the Price Level