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In the long run, if the price level decreases, then the economy's output level will group of answer choices

a. increase initially, but then fall back again.
b. increase.
c. decrease.
d. stay the same.

1 Answer

1 vote

Final answer:

In the long run, the economy's output level will stay the same if the price level decreases. Therefore, the correct option is D.

Step-by-step explanation:

In the long run, if the price level decreases, the economy's output level will stay the same.

From a neoclassical perspective, changes in the price level do not have a direct impact on output in the long run. In the long run, potential GDP and aggregate supply determine the size of the economy's output. When prices decrease, there may be a temporary increase in output in the short run as employers can hold down on pay increases or replace higher-paid workers with lower-wage ones, but over time, the output level will return to the potential GDP. Therefore, the correct answer is d. stay the same.

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