A decrease in the overal level of investment in an economy, holding everything e

Question

A decrease in the overal level of investment in an economy, holding everything else constant, causes the price level (as evidenced by the CPI or GDP Deflator) to______in the short run and______in the long run. decrease; increase decrease; decrease further increase; decrease increase; increase further In the diagram above, LRAS_1 and SRAS denote LRAS and SRAS in year 1, while LRAS_2 and SRAS_2 denote LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the growth rate in potential GDP in year 2? 12% 9.1% 8% 10%

Explanation / Answer

1. B) DECREASE AND DECREASE FURTHER.

2. D) 10% ( 12.1 - 11.0 = 1.1 WHICH IS 10%)

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