How does real GDP change in the long run when autonomous expenditure increases? Does real GDP change by the same amount as the change in aggregate demand? Why or why not?
What will be an ideal response?
In the long run, an increase in aggregate expenditure has no effect on real GDP, that is, real GDP does not change. The change in real GDP—zero—is less than the change in aggregate demand. The change in real GDP is nil because, in the long run, the economy returns to its full-employment equilibrium. In the long run, an increase in aggregate expenditure raises the price level but has no effect on real GDP.
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According to your authors, economics
A) alone is not the only, or even the best, perspective to make sense out of the real world. B) can predict real-world phenomena with roughly 85-90% accuracy. C) generates conclusions every reasonable person should accept as true. D) is a false doctrine because individuals have been shown to act non-selfishly.
If a producer is not able to expand its plant capacity immediately, it is
A) operating in the long run. B) operating in the short run. C) losing money. D) bankrupt.