This year, a nation's long-run equilibrium real GDP and price level both increased. Which of the following combinations of factors might simultaneously account for both occurrences? Insert Y to indicate YES and N to indicate NO.
Part 2
a. An isolated earthquake at the beginning of the year destroyed part of the nation's capital stock, and the nation's government significantly reduced its purchases of goods and services.
N (a negative supply shock and a decrease in government spending would decrease real GDP and increase price level)
b. The nation's central bank significantly increased the money supply, and a significant discovery of new natural resources boosted productivity and output.
Y (An increase in money supply would increase aggregate demand and output, while an increase in productivity and output would increase supply and decrease price level)
b. There was a minor technological improvement at the end of the previous year, and the quantity of money in circulation rose significantly during the year.
Y (A technological improvement would increase productivity and output, while an increase in the money supply would increase aggregate demand and output, causing an increase in price level as well)
c. Labor productivity increased somewhat throughout the year, and consumers significantly increased their total planned purchases of goods and services.
Y (An increase in labor productivity would increase supply and decrease price level, while an increase in consumption spending would increase demand and output, increasing the price level as well)
d. The capital stock increased
somewhat during the year, and the quantity of money in circulation declined considerably.