Question

Which of the following will happen when the economy makes the transition from its short-run equilibrium to its long-run equilibrium? (Note: Do not adjust the graphs to reflect the transition to the long run.) Check all that apply.

A. The price level will fall.
B. The demand for money will fall.
C. The equilibrium interest rate will rise.

Answer 1

C. The equilibrium interest rate will rise.

Step-by-step explanation:

Nominal wages, prices, and perceptions adjust upward to this new price level.

Answer 2

C. The equilibrium interest rate will rise.

Step-by-step explanation:

According to the question, When the economy made the transition from the short run equilibrium to the long run equilibrium than there is a rise in the supply that results in rise in the nominal wages but the real wage would remain unchanged or constant

Therefore the option c is correct and the rest of the options are wrong