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Consider the AD/AS Model After Factor Prices Have Fully Adjusted

Question 14

Multiple Choice

Consider the AD/AS model after factor prices have fully adjusted to output gaps. A reduction in the level of potential output, with aggregate demand constant, will


A) decrease real output and leave the price level unchanged.
B) leave real output unaffected and increase the price level.
C) decrease real output and decrease the price level.
D) decrease real output and increase the price level.
E) increase real output and decrease the price level.

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