Suppose the Economy Is in Long-Run Equilibrium

Multiple Choice

Suppose the economy is in long-run equilibrium. Parliament passes regulations that make it more costly to conduct business, so the long-run aggregate supply curve shifts $80 billion to the left. At the same time, government purchases increase by $60 billion. If the MPC equals 0.75 and the crowding-out effect is $70 billion, what would we expect to happen in the long run to real GDP and the price level?

A) Both real GDP and the price level would be higher.
B) Both real GDP and the price level would be lower.
C) Real GDP would be lower, but the price level would be higher.
D) Real GDP would be lower, but the price level would be the same.