Quizzol

QUESTION:

Suppose the economy is initially in long-run equilibrium. Then suppose there is a reduction in investment spending. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run?

a. Prices rise and output is unchanged from its initial value.

b. Prices fall and output is unchanged from its initial value.

c. Output rises and prices are unchanged from the initial value.

d. Output falls and prices are unchanged from the initial value.

e. Output and the price level are unchanged from their initial values

ANSWER:

b. Prices fall and output is unchanged from its initial value.

Posted by Cleveland on September 10, 2024