Suppose the economy is in long-run equilibrium.Concerns about pollution cause the government to significantly restrict the production of electricity.At the same time,taxes fall.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

The restriction on electricity production decreases aggregate supply, which tends to increase the price level. The tax cut increases aggregate demand, which also tends to increase the price level. The net effect on real GDP is uncertain as it depends on the relative magnitudes of the shifts in aggregate supply and demand.

Suppose the Economy Is in Long-Run Equilibrium