Consider an increase in the price of petroleum, a key factor of production in the gasoline, energy, and automo

Question

Consider an increase in the price of petroleum, a key factor of production in the gasoline, energy, and automobile industries. Assume that output is initially at Natural Real GDP.

Consider the effect of the increase in the price of petroleum. Monetarists believe that if aggregate demand remains constant, the economy __________________.



A. Establishes long-run equilibrium with a higher price level and higher Real GDP

B. Establishes long-run equilibrium with a higher price level and lower Real GDP

C. Returns to its initial long-run equilibrium

D. Establishes long-run equilibrium with a lower price level and higher Real GDP

Answer 1

C. Returns to its initial long-run equilibrium

See link below:
http://www.econweb.com/MacroWelcome/monetarism/quiz/answers.html