What would cause prices to rise and real GDP to fall in the short run?
A) an increase in the expected price level
B) optimism about the future
C) an increase in the quantity of labour available
D) a decrease in interest rates

Question

Quizplus · Accepted Answer

An increase in the expected price level would cause prices to rise in the short run as producers would anticipate higher prices and adjust their prices accordingly. However, this increase in prices would also lead to a decrease in real GDP as consumers would have less purchasing power and therefore demand less goods and services.

What Would Cause Prices to Rise and Real GDP to Fall