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Suppose the economy is in long-run equilibrium. In a short span of time, there is an...

Suppose the economy is in long-run equilibrium. In a short span of time, there is an increase in the number of highly educated workers and an improvement in farming technologies related to growing corn. In the short run, we would expect

the price level to rise and real GDP to fall.

the price level to fall and real GDP to rise.

the price level to fall and real GDP to fall.

the price level and real GDP both to stay the same.

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Answer #1

Answer : Option b) the price level to fall and real GDP to rise

Increase in the number of highly educated workers and improvement in farming technologies improves the physical capital level in the economy and also increases the efficiency in production, this reduces the cost of producing for each level of production. This reduction in cost increases the aggregate supply (supply curves shifts to the right) thereby real output increases and price level falls.

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