Multiple Choice
Suppose the economy is initially in long-run equilibrium. Now suppose oil prices rise sharply and at the same time, policymakers pursue expansionary monetary and fiscal policies. Which of the following will occur as a result of these two events, given that supply-side effects dominate demand-side effects?
A) The price level will necessarily rise but the effect on output is indeterminate.
B) Real GDP must necessarily fall but the effect on the price level is indeterminate.
C) The price level and real GDP must rise.
D) The price level must rise and real GDP must fall.
Correct Answer:
Verified
Correct Answer:
Verified
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