53.) Assume that the economy is initially in a long-run equilibrium. Now suppose that businesses and...

53.) Assume that the economy is initially in a long-run equilibrium. Now suppose that businesses and households become more pessimistic about the future and decide to invest less in new structures, tools, and equipment, and also decide to engage in less consumption spending, at the current price level.

a.) What will happen to output and the price level in the short run? Output will (rise, fall, stay the same) and the price level will (rise, fall, stay the same). (2 points; 1 point each)

b.) Assuming that neither the Federal Reserve, nor fiscal policymakers change any aspect of policy. What will happen to output and the price level in the long run? Output will (return to the natural level, fall further, remain below the natural level) and the price level will (end up lower than initially, end up higher than initially, end up the same as initially). (2 points; 1 point each)

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Rahul Sunny answered 1 year ago

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