1. In the aggregate demand–aggregate supply model, which of these changes is mos
ID: 2440501 • Letter: 1
Question
1.
In the aggregate demand–aggregate supply model, which of these changes is most likely when the cost of production increases in the long run?
An increase in the potential output level increases.
2.
The figure below shows the short-run aggregate demand and supply curves of an economy. If the economy is currently producing at Y2, long-run equilibrium will most likely be established by a(n):
?
Figure 10.2
a. A leftward shift of the short-run aggregate supply curve Price level Potential output SRAS AD Real GDP Y1 Y2Explanation / Answer
1. A leftward shift in the SRAS. Aggregate supply is the total quantity of goods and services supplied at a given price.This causes a recession as output falls and price level increases.
2.d. SRAS will shift to the left. Real GDP (Y2) is greater than potential GDP (Y1), there is inflationary pressure due to increase in price levels. Cost of production will rise due to higher wages and SRAS will shift to the left. The equilibrium point will once again move back to the original level.
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