Asked by Preet Sangha on Jul 07, 2024
Verified
Refer to Scenario 33-2. In the short run what happens to the price level and real GDP?
A) Both the price level and real GDP rise.
B) Both the price level and real GDP fall.
C) The price level rises and real GDP falls.
D) The price level falls and real GDP rises.
Price Level
The overall current average price of goods and services within the economic framework.
Real GDP
Gross Domestic Product adjusted for inflation, reflecting the value of all goods and services produced by an economy in a given year at constant prices.
Short Run
A period in which at least one input is fixed, and only some of the production inputs can be varied.
- Understand the implications of variations in aggregate demand and aggregate supply for price levels and real GDP in the short run.
Verified Answer
ZK
Zybrea KnightJul 08, 2024
Final Answer :
A
Explanation :
When stock prices rise more than expected and stay high, it typically leads to increased wealth for investors. This can boost consumer spending and investment, leading to higher aggregate demand. In the short run, this increase in demand can cause both the price level and real GDP to rise as the economy moves to a new short-run equilibrium at a higher output and price level.
Learning Objectives
- Understand the implications of variations in aggregate demand and aggregate supply for price levels and real GDP in the short run.