The Economy Is in Long-Run Equilibrium When Government Unexpectedly Increases

Multiple Choice

The economy is in long-run equilibrium when government unexpectedly increases aggregate demand.The expected inflation rate is slow to adjust to the higher (actual) inflation rate.If follows that in the short run,according to the Friedman natural rate theory,__________ rises and the __________ falls.

A) the unemployment rate; price level
B) Real GDP rises; unemployment rate
C) nominal interest rate; real interest rate
D) the unemployment rate; Real GDP level
E) none of the above