Suppose the full-employment level of real output (Q)for a hypothetical economy is $500 and that the price level (P)initially is 100.Use the following short-run aggregate supply schedules to answer the next question.

-Refer to the information above.In the long run,a fall in the price level from 100 to 75 will:
A) decrease real output from $500 to $440.
B) increase real output from $500 to $620.
C) change the aggregate supply schedule from (a)to (c)and produce an equilibrium level of real output of $500.
D) change the aggregate supply schedule from (a)to (b)and produce an equilibrium level of real output of $500.

Question

Suppose the full-employment level of real output (Q)for a hypothetical economy is $500 and that the price level (P)initially is 100.Use the following short-run aggregate supply schedules to answer the next question.
 
-Refer to the information above.In the long run,a fall in the price level from 100 to 75 will:
A) decrease real output from $500 to $440. 
B) increase real output from $500 to $620. 
C) change the aggregate supply schedule from (a)to (c)and produce an equilibrium level of real output of $500. 
D) change the aggregate supply schedule from (a)to (b)and produce an equilibrium level of real output of $500.

Quizplus · Accepted Answer

In the long run, the aggregate supply is vertical, meaning that real output is determined by factors other than the price level. Therefore, a change in the price level does not affect the equilibrium level of real output, which remains at $500.

Suppose the Full-Employment Level of Real Output (Q)for a Hypothetical