Consider an economy in equilibrium and assume no change in aggregate demand. A breakthrough in agricultural technology would result in a(n) ____ in the average price level and ____ in real GDP.
A) decrease; a decrease
B) decrease; an increase
C) increase; an increase
D) increase; a decrease
E) increase; no change

Question

Quizplus · Accepted Answer

With the breakthrough in agricultural technology, the cost of production for agricultural goods would decrease. This would lead to a decrease in their prices, and hence, the overall average price level of goods in the economy would decrease. The decrease in production costs and prices would also lead to an increase in the supply of goods, and hence, an increase in real GDP. Therefore, the correct answer is a decrease in the average price level and an increase in real GDP, which is option B.

Consider an Economy in Equilibrium and Assume No Change in Aggregate