Suppose the economy is in long-run equilibrium.If there is an increase in the supply of labor as well as an increase in the money supply,then 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

An increase in the supply of labor would shift the short-run aggregate supply curve to the right, increasing real GDP. An increase in the money supply would shift the aggregate demand curve to the right, also increasing real GDP. However, the effect on the price level is ambiguous, as it depends on the relative sizes of the shifts and the slope of the aggregate supply and demand curves. Therefore, we would expect real GDP to rise in the short-run but the price level might rise, fall, or stay the same.

Suppose the Economy Is in Long-Run Equilibrium