Question

Suppose the economy starts off producing Natural Real GDP. Next, aggregate supply rises, ceteris paribus. As a result, the price level falls in the short run. In the long run, when the economy has moved back to producing Natural Real GDP, the price level will be Question 4 options:

Answer 1

Answer:

The price level will be equal to what it was before there was a rise in the aggregate supply.

Explanation:

In economics, natural gross domestic product (Natural Real GDP) can be described as the maximum level of real GDP that can be  sustained by an economy over the long term. The Natural Real GDP is also known as the potential output.

From the question, since the economy has moved back to producing Natural Real GDP which is the maximum real GDP sustainable, the price level will be equal to what it was before there was a rise in the aggregate supply.

Therefore, the price level will be equal to what it was before there was a rise in the aggregate supply.