The economy is in long-run equilibrium. Suddenly, due to improved international relations, a boom experienced by a major trading partner, and the increased confidence of policymakers, citizens become more optimistic about the future and stay this way for a long time.

Refer to the Scenario 14-1. In the short run, which statement describes the changes that take place in the economy? (1 mark)

a. Both the price level and real GDP rise.

b. Both the price level and real GDP

c. The price level rises and real GDP falls.

d. The price level falls and real GDP rises.