In the short-run,an increase in the price of raw materials will ________ the price level and ________ real GDP.
A)raise;increase
B)raise;decrease
C)raise;not change
D)lower;increase
E)lower;decrease

Question

Quizplus · Accepted Answer

An increase in the price of raw materials will lead to an increase in production costs for firms, which will result in a decrease in their profits. To maintain profits, firms may raise the prices of their products, leading to an increase in the price level. However, as the cost of production has increased, firms may reduce their output, leading to a decrease in real GDP.

In the Short-Run,an Increase in the Price of Raw Materials