Question

1. Aggregate supply definitions The short-run aggregate supply curve shows: What happens to output in an economy when the government spends more money How firms respond to changes in interest rates Changes in output in an economy as the price level changes, holding all other determinants of real GDP constar The relationship between the price level and aggregate expenditure Which of the following are assumed to remain unchanged along a given short-run aggregate supply curve? Check all that The price level The technology available to firms Input prices The position of the aggregate demand curve The term natural rate of unemployment refers to: The unemployment that arises due to purely seasonal factors, such as unemployed lifeguards in the winter The unemployment rate that occurs when an economy's real GDP is equal to its potential output The unemployment rate that would occur if there were no frictional unemployment The minimum possible unemployment rate for an economy

Answer 1

1. Option c is correct.

The short run aggregate supply curve shows the changes in output in an economy as the price level changes, holding all other determinants of real GDP constant.

It shows the correlation between price level and the output.

Keeping all determinants of GDP constant, if output changes with prices short run aggregate supply curve depicts that there is a positive correlation between price level and output.

2. Option b and c are correct.

The technology available to firms and input prices are assumed to remain unchanged along a given short run aggregate supply curve.

3. Option b is correct.

The natural rate of unemployment refers to the unemployment rate that occurs when an economy's real GDP is equal to its potential output.

It is the unemployment rate that prevails when the economy is producing it's potential output and real GDP equals it's potential output.

4. Short run is a period of time in which some input prices and wages are fixed.

Long run is a period of time long enough for all input prices and wages to be renegotiated.