Question

Suppose the economy is in long-run equilibrium. If there is an increase in the supply of labor as well as an increase in the money supply, then we would expect that in the short-run, a. real GDP will rise and the price level might rise, fall, or stay the same. b. real GDP will fall and the price level might rise, fall, or stay the same.

Answer 1

Answer:- a. Real GDP will rise and the price level might rise, fall, or stay the same.

Explanation:

In the short-run equilibrium, Capital is one among the factors of production which remains constant. On the contrary, the rate of land, labor, and organization tends to change. Such changes are caused by the effects of the decrease in the interest rate and money supply. The Money supply is automatically adjusted with inflation.

As a result, the Real GDP will rise accordingly with improvement in technological advancements. The Output suddenly increases with the Aggregate supply and demand. In this situation, the quantity of labor and the money supply optimally with the change in the government policies and regulations during a short period of the economic cycle.