The stock market declines sharply, reducing consumers’ wealth. What are the short-run and long-run effects on output and the price level?

a. In the short-run, output increases and the price level decreases. In the long-run, output returns to
its original level while the price level is lower than it was initially
b. In the short-run, both output and the price level decrease. In the long-run, output returns to its
original level while the price level is lower than it was initially
c. In the short-run, output decreases and the price level increases. In the long-run, output returns to
its original level while the price level is higher than it was initially
d. In the short-run, both output and the price level decrease. In the long-run, output and the price
level return to their original levels

Answer rating: 100% (QA)

Option B A fall in consumer wealth will increase consumption demand which will decrease aggregate de... View the full answer