What is the shape of the short-run and long-run demand and supply curves. Discuss what causes...
What is the shape of the short-run and long-run demand and supply curves. Discuss what causes shifts in the aggregate demand curve. Discuss what causes shifts in the aggregate supply curve.
Homework Answers
Answer : 1) The slope of short-run and long-run demand curve is downward sloping. But the long run demand curve is more flatter than the sort run demand curve.
The short run supply curve is upward sloping. The long run supply curve is vertically sloped.
2) The components of aggregate demand curve are consumption, investment, government expenditure and net export. If any of these components change then aggregate demand curve shift. If remaining other things same only one component of aggregate demand decrease then the aggregate demand curve shift to leftward. If remaining other things same only one component of aggregate demand increase then the aggregate demand curve shift to rightward. So, the changes in components of aggregate demand curve are the reason of shifting aggregate demand curve.
3) Aggregate supply depends on input prices, technology and business taxes. Remaining other things as constant if input prices and tax rate decrease then the aggregate supply curve shift to righward and if increase then the aggregate supply curve shift to leftward. If technology develop then the aggregate supply curve shift to rightward. So, input prices, technology and business taxes are the main reason of shifting aggregate supply curve.
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What is the shape of the short-run and long-run demand and
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A supply shock causes a shift in:
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Figure 20-1
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Figure 20-1
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