Question

If the current short-run equilibrium level of output is greater than full employment output, we can then expect that in the long run the:

Answer 1

Answer: b. the price level will rise.

Step-by-step explanation:

If the current short run equilibrium level of output is higher than full employment, this means that the country is using more resources than it has and this is not sustainable.

In the long run therefore, supply in the economy will decrease as producers produce less and this will force the Short Run Aggregate Supply curve to shift left. The new equilibrium will then be at a higher price level.