Question

Can I get small explanation on why each one is correct

With the economy at full employment, consumers and firms become more optimistic about the future economy and

a. The output will rise

b . The unemployment will rise.

c. price levels will fall.

In an AD/AS diagram, ________ could explain a rise in cyclical unemployment.

a. a shift in AS to the left

b. a shift in AS to the right

c. a shift in AD to the right

In the long run, the least important cause of shifts the aggregate supply curve is

a. technological change.

b. change in productivity.

c. change in consumer spending.

Answer 1

a) Starting from the full employment point i.e. the economy at potential output firms becoming more optimistic will increase the output, unemployment to fall and price level to rise. The answer is "A".

As people get more optimistic they will invest more in the market that will increase the employment and as more people are employed the output will rise and wages will increase. Increased wages will increase the price in the market.

b) "A"

When the AS or the aggregate supply curve move to the left it means increase in the price and decrease in the employment cause it moves to the left when the input cost like wages rise. IN cyclical unemployment wages whenever wages increase the unemployment will increase.

c) "C"

A change in the consumer spending will not affect the supply curve in the long run much because all the firms will have enough time to respond to the change , it will shift the AS immediately and the new equilibrium will be at a lower price.