When economic growth (a gradual shift of LRAS to the right) expands the production possibilities of an economy,
A) a higher rate of real output can be achieved in the short run, but it cannot be sustained in the long run.
B) a larger output can be attained even if unemployment remains at its natural rate.
C) the general level of prices will rise if the money supply is held constant.
D) the equilibrium in the goods and services market will be disrupted.

Question

Quizplus · Accepted Answer

Economic growth allows an economy to produce more goods and services, expanding its production possibilities. This means that a larger output can be attained even if unemployment remains at its natural rate, as there are more resources available to produce goods and services. Option A is incorrect as economic growth can be sustained in the long run through investment and technological advancements. Option C is incorrect as the general level of prices may rise due to an increase in demand or supply shocks, but this is not necessarily a direct result of economic growth. Option D is incorrect as economic growth does not disrupt the goods and services market equilibrium, but rather expands it.

When Economic Growth (A Gradual Shift of LRAS to the Right)