Question

Suppose that the economy is at long-run equilibrium. If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers, then in the short runa. 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.c. the price level will rise, and real GDP might rise, fall, or stay the same.d. the price level will fall, and real GDP might rise, fall, or stay the same.

Answer 1

Answer:

d. the price level will fall, and real GDP might rise, fall, or stay the same.

Explanation:

Suppose that the economy is at long-run equilibrium. If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers, then in the short runa the price level will fall, and real GDP might rise, fall, or stay the same.

The certainty is that as immigration increases price level falls as a result of 2 things:

1. Immigration affects the prices of the inputs that are used to produce goods and services. Those inputs for which immigrant labor substitutes will suffer as the prices of their services fall. Therefore, an increase in the number of immigrants will generally decrease the wages of domestic unskilled workers.

2. Immigration affects the prices of the outputs of production process because as the number of workers increase, production ability and supply of goods and services increase and increased supply will definitely result in lower prices.