The Stock Market Boom of 2010
Imagine that in 2010 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time.
-Refer to Stock Market Boom 2010.How is the new long-run equilibrium different from the original one?
A)the price level and real GDP are higher
B)the price level and real GDP are lower.
C)the price level is higher and real GDP is the same.
D)the price level is the same and real GDP is higher.

Question

Quizplus · Accepted Answer

In the long run, real GDP returns to its natural level, but the price level can be higher due to increased aggregate demand from the wealth effect of higher stock prices.