Suppose Canada's Economy Is in a Long-Run Equilibrium with Real

Multiple Choice

Suppose Canada's economy is in a long-run equilibrium with real GDP equal to potential output.Now suppose there is an unexpected and sharp reduction in desired business investment expenditure.In the short run,________.In the long run,________.

A) real GDP and the price level both fall; real GDP is at its original level with a lower price level
B) real GDP and the price level both fall; real GDP is above its original level with a higher price level
C) real GDP and the price level both rise; real GDP returns to its original level with a higher price level
D) real GDP rises and the price level falls; real GDP returns to its original level with a lower price level
E) real GDP falls and the price level rises; real GDP is below its original level with a higher price level