Imagine the U.S.economy is in long-run equilibrium.Then suppose the value of the U.S.dollar decreases.At the same time,people in the U.S.revise their expectations so that the expected price level rises.We would expect that 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

When the value of the U.S. dollar decreases and people revise their expectations so that the expected price level rises, it will lead to an increase in aggregate demand. This increase in aggregate demand will cause output and prices to rise in the short run. Therefore, real GDP might rise, fall or stay the same, while the price level will definitely rise in the short run. This is because the lower value of the U.S. dollar will make domestically produced goods less expensive to foreign buyers, which will increase the demand for U.S. goods and services from abroad.