Suppose the Economy Is in Long-Run Equilibrium and the Government

Multiple Choice

Suppose the economy is in long-run equilibrium and the government decreases its expenditures.Which of the following helps explain the logic of why the economy moves back to long-run equilibrium?

A) as people revise their price-level expectations upward,firms and workers strike bargains for higher nominal wages.
B) as people revise their price-level expectations upward,firms and workers strike bargains for lower nominal wages.
C) as people revise their price-level expectations downward,firms and workers strike bargains for higher nominal wages.
D) as people revise their price-level expectations downward,firms and workers strike bargains for lower nominal wages.