Suppose the economy is in long-run equilibrium.In a short span of time,there is a sharp increase in the supply of labor,a major new discovery of oil,and new environmental regulations that raise the cost of electricity production.In the short run
A)the price level will rise and real GDP will fall.
B)the price level will fall and real GDP will rise.
C)the price level and real GDP will both stay the same.
D)All of the above are possible.

Question

Quizplus · Accepted Answer

All of the given options are possible outcomes in the short run due to the simultaneous occurrence of multiple events that impact the economy in different ways. The increase in labor supply can lead to a decrease in wages and production costs, boosting real GDP. However, the discovery of oil can lead to a decrease in oil prices, leading to a decrease in the overall price level. The new environmental regulations that raise the cost of electricity production can lead to an increase in production costs, leading to a decrease in real GDP and an increase in the price level. Hence, all of the given options are possible in the short run.

Suppose the Economy Is in Long-Run Equilibrium