Einal Exam a. is determined by resource usage and technology b. is at the point
ID: 1163089 • Letter: E
Question
Einal Exam a. is determined by resource usage and technology b. is at the point where the unemployment rate is zero. c shifts to the right when the money supply increases. d is at the point where the economy would cease to grow 44. The position of the long-run aggregate supply curve that the quantity of output firms 45. The sticky-wage theory of the short-run aggregate supply curve says increase if a the price level is higher than expected b. the price level is higher than expected making production less profitable. c. the price level is lower than expected making production more profitable. d. the price level is higher than expected making production less profitable Consider the exhibit below for the following questions Figure 33-4 making production more profitable. 46.Refer to Figure 33-4.If the economy starts at A, a decrease in the money supply moves the a. to A in the long run. b. to C in the long run. c. back to A in the long run d. to D in the long run.Explanation / Answer
44. The position of long run supply curve
Is determined by the level of resources usage and technology.
Correct ans is a)
Explaination :
It is so because if the level of technology changes of resources changes it results in the changes of the Production possibility curve and demand for labour.
For example if the technology improved or the resources rises, it means the PPF of the economy will shift to rightward, which means the as the productivity increases as productivity increases, people will demand more labour which means natural rate of employment Ln also increases and as Ln increases the Long run aggregate supply curve will shift right.
Other options are incorrect:
Option b) is incorrect because the position of long run the aggregate supply curve shows the natural rate of employment where cyclic unemployment is zero not where unemployment is zero.
Option C) is incorrect because when money supply increase it leads to increase the prices of the economy not the real GDP in the long run so it does not determine the position of long run aggregate supply curve.
Option D) is incorrect because the long run aggregate supply curve is at a point which shows the potential level of real GDP of the economy.
45. The sticky wage theory says that..
The price level is higher than expected making production more profitable.
Explaination : it is by definition of the sticky wage theory.
Correct ans is a)
46. If economy starts at A, decrease in the money supply moves the economy
To C in the long run.
Correct ans is b)
Explaination:
As the money supply decrease, in the short run, the interest rate rises and the aggregate demand falls, but in long run the decrease in money supply will lead to fall in the price level not the real GDP or the position of long run aggregate supply curve. Because in long run the changes in the money supply will only effect the price level not the real GDP. So it will decrease the prices but not real GDP, it means it will be at point C where real GDP is same but price level falls.
Other options are incorrect:
Option a) is incorrect because money supply decrease will decrease the level of prices but at point A economy is at price level where it is started.
Option C) is incorrect because it will not back to A as prices will fall.
Option D) is incorrect because in the long run the real GDP will remain same not fall due to fall in money supply.
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