Question

QUESTION 25

1. Which of the following best describes the long run in terms of aggregate supply?

   	a.	The long-run aggregate supply curve is horizontal.
   	b.	The long-run aggregate supply slopes upwards, but is NOT vertical.
   	c.	The long-run aggregate supply slopes downwards.
   	d.	The long-run aggregate supply curve is vertical.

Question 39

Which of the following best characterizes market equilibrium?

	a.	when there is no incentive for consumers or producers to change their current behaviour
	b.	when producers earn profits
	c.	when the minimum possible price is achieved
	d.	when excess demand is less than excess supply

QUESTION 41

1. What would be the result of a decrease in autonomous saving?

   	a.	an increase in the level of autonomous consumption
   	b.	an upward shift of the aggregate expenditure line
   	c.	an upward shift of the 45-degree line
   	d.	a decrease in the equilibrium level of real GDP demanded

QUESTION 49

1. Which of the following is NOT a factor in determining potential output?

   	a.	the technology in current use
   	b.	the supply of labour
   	c.	labour productivity
   	d.	the number of consumers in the market

Answer 1

Question 25

Option D is correct - The long-run aggregate supply curve is vertical

The aggregate supply curve shows a relationship between the price and the output level of the economy. It mainly depends on the changes related to the factors of production. But in the long run, the aggregate supply is not affected by the price level, this is because the change in the higher prices charged by the consumers is offset by the higher input prices to the producers. Thus the change in prices remains ineffective leading to a vertical aggregate supply curve.

Question 39

Option A is correct - when there is no incentive for consumers or producers to change their current behavior

Market equilibrium is defined as a condition when the quantity demanded equals quantity supplied in the economy. This means that there is no tendency for the consumers to change their demand and the producers to change their supply level and the market is in equilibrium.

Question 41

Option B is correct - an upward shift of the aggregate expenditure line

When there is a decrease in the autonomous savings, the consumption and investment level in the economy increases which are the components of aggregate expenditure. Thus the aggregate expenditure line shifts upward.

Question 49

Option D is correct - the number of consumers in the market

Potential output in the economy is affected by the factors affecting productivity in an economy. Thus factors like technology, labor, and labor productivity affect the productive capacity and the numbers of consumers have nothing to do with the productive capacity.