Suppose that you have the following information about the economy,where all figures are in millions of dollars:
Full employment output = $2,000
Consumption = $1,200
Investment = $400
Government spending = $500
Net exports = -$200
Because short-run output is ________ full employment output,in the long run we would expect the price level to ________.
A) less than; rise
B) less than; fall
C) greater than; rise
D) greater than; fall
E) equal to; remain unchanged

Question

Quizplus · Accepted Answer

Short-run output is less than full employment output due to the negative net exports which reduce the overall demand in the economy. In the long run, the price level is expected to fall because the economy will adjust to full employment output, causing a contractionary effect on the aggregate demand which lowers the overall price level.

Suppose That You Have the Following Information About the Economy,where