Question

Which of the following statements best describes how economic growth is represented i n the AD/AS diagram? In the AD/AS diagram, long-run economic growth due to productivity increases over time will be represented by a gradual shift to the right of aggregate supply. In the AD/AS diagram, short-run economic growth due to productivity increases over time will be represented by a dramatic shift to the right of aggregate supply. In the AD/AS diagram, short-run economic growth due to productivity increases over time will be represented by a gradual shift to the right of aggregate supply. In the AD/AS diagram, long-run economic growth due to productivity increases over time will be represented by a dramatic shift to the right of aggregate supply.

Aggregate supply (AS) refers to the total quantity of output firms will produce and sell. true false

In which zone will small shifts in AD, either to the right or the left, have relatively little effect on the output level, but instead will have greater effect on the price level? Neoclassical Keynesian Equilibrium Intermediate

Which of the following statements best describes the intermediate zone of the aggregate supply curve? In the intermediate zone of the AS curve, movement in AD to the right will increase the output level and decrease the price level. In the intermediate zone of the AS curve, movement in AD to the right will increase both the output level and the price level, while a movement in AD to the left would decrease both the output level and the price level. In the intermediate zone of the AS curve, movement in AD to the left will increase both the output level and the price level, while a movement in AD to the left would decrease both the output level and the price level. In the intermediate zone of the AS curve, movement in AD to the left will increase the output level and decrease the price level.

An unexpected event like a drought in the Midwest causing a loss of wheat crops would be an example of? a stagflation shock. an input shock. a productivity shock. a supply shock.

Answer 1

1. Longrun aggregate supply curve represents the potential capacity of the economy to produce output. A rightward shift in longrun aggregate supply occurs when there is an increase in productivity of the economy. When economic growth take place the longrun aggregate supply curve shift to the right over time.

Answer: In the AD/AS diagram, longrun economic growth due to productivity increase over time will be represented by a gradual shift to the right of aggregate supply.

2. Aggregate supply is the total quantity of output firms will produce and sell. But aggregate supply curve shows the total quantity of output firms will produce and sell at each price level.

Answer: True

3. In the neo-classical range both monetary and fiscal policies are ineffective in influencing output and price level. The neo-classical believes in the full employment and neutrality of money and hence any monetary or fiscal measures to increase the level of output will simply increase the price level and the real and monetary segment of the economy will be unaffected by the change. Thus a shift in aggregate demand either to right or left does not increase or decrease the GDP but simply increase or decrease the price level.

Answer: Neoclassical

4. In the intermediate range the increase in aggregate demand cause a higher level of output and price level and decrease in aggregate demand cause lower output and price level.

Answer: In the intermediate zone of the AS curve, movement in AD to the right will increase both the output level and the price level, while a movement in AD to the left would decrease both output level and price level.

5. Supply shocks are unexpected event that reduce or increase the supply. The negative supply shocks may be due to increase in oil prices, higher union wage, natural calamities.

Answer: a supply shock.