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