Economic growth causes the production possibilities curve to shift rightward and

Question

Economic growth causes the production possibilities curve to shift rightward and the long - run aggregate supply curve to shift rightward - production possibilities curve to shift leftward and the long - run aggregate supply curve to shift rightward production possibilities curve to shift rightward and the long - run aggregate supply curve to shift leftward production possibilities curve to shift leftward and the long - run aggregate supply curve to shift leftward One reason that the aggregate demand curve slopes downward is because higher price levels increase real wealth and consumption higher price levels reduce net exports higher price levels reduce interest rates higher price levels increase investment If an economy is at long - run equilibrium and consumers' confidence in the economy rises aggregate demand will shift leftward and the price level will rise aggregate demand will shift leftward and the price level will fall aggregate demand will shift rightward a

Explanation / Answer

13.

The correct option is (A).

The Production Possibilities Frontier shows the maximal combinations of two goods that can be produced during a specific time period given fixed resources and technology and making full and efficiency use of available factor resources.

Here the PPF shifts towards right representing an increase in the potential output. As a result, the LRAS curve shifts towards right.

14.

The correct option is (B).

With an increase in domestic price level relative to those of trading partners, domestic consumers will spend less on domestically produced goods and services and more on imports (M). Also, foreigners will buy less of our exports (X). The increase in M and decrease in X (that is, a decrease in net exports) means a decrease in real GDP.

15.

The correct option is (D).

If prices rise in the short run, there will be rightward shift of the AD curve. Thus, the shift in AD curve will be greater than the magnitude of the shift out of the SRAS curve. Fed policy will reduce M, shifting in the AD curve which will cause P to fall.

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