Suppose Canada’s economy is in a long run equilibrium with real GDP equal to potential output. Now suppose there is an unexpected and sharp reduction in desired business investment expenditure. In the short run, _____. In the long run,______.
Real GDP and the price level both fall; real GDP is above its original level with a higher price level
Real GDP falls and the price level rises; real GDP is below its original level with a higher price level
Real GDP and the price level both fall; real GDP is at its original level with a lower price level
Real GDP and the price level both rise; real GDP returns to its original level with a higher price level
Real GDP rises and the price level falls: real GDP returns to its original level with a lower price level
