Author Question: How can the long-run equilibrium level of real Gross Domestic Product (GDP) increase without the ... (Read 94 times)

futuristic · **on:** Jun 30, 2018

How can the long-run equilibrium level of real Gross Domestic Product (GDP) increase without the price level changing?

What will be an ideal response?

Question 2

In order to ________ the long-run real interest rate, the Fed needs to ________.

A) raise; raise the long-run inflation expectations B) raise; lower the long-run nominal interest rate
C) lower; raise the long-run nominal interest rate D) lower; raise the long-run inflation expectations

jharrington11 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

Since the long-run aggregate supply curve is vertical, the only way real Gross Domestic Product (GDP) can increase without the price level changing is if aggregate demand increases and long-run aggregate supply increases. For the latter to happen, either the endowment of inputs must increase or technology must change.

Answer to Question 2

D