Question

According to the AD/AS model, the long-run aggregate supply curve is determined by the availability of labor, capital, natural resources and technology.

Select one:

True

False

A decrease in demand would cause the price level to fall and the SRAS to shift to the left.

Select one:

True

False

Suppose the economy is in long-run equilibrium. If there is an increase in government spending at the same time that an increase in resources reduces production costs, then in the short-run we would expect real GDP will rise and the price level might rise, fall, or stay the same.

Select one:

True

False

According to the AD/AS model, an increase in the price level with a corresponding reduction in real GDP could be created by natural disasters such as floods, hurricanes, unusually dry weather or pandemics that kill laborers.

Select one:

True

False

If the long-run aggregate supply curve shifts right, then the price level will decrease and real output will increase if the aggregate demand curve is stationary.

Select one:

True

False

Answer 1

Answer 1) According to the AD/AS model, the long-run aggregate supply curve is determined by the availability of labour, capital, natural resources and technology - This statement is False because long-run aggregate supply curve is determined by the unemployment rate, price, expected price and output.

2) A decrease in demand would cause the price level to fall and the SRAS to shift to the left - This statement is False because a decrease in the price level would shift the SRAS to the right.

3) Suppose the economy is in long-run equilibrium. If there is an increase in government spending at the same time that an increase in resources reduces production costs, then in the short-run we would expect real GDP will rise and the price level might rise, fall, or stay the same - This statement is True because AD/AS Shift to the right if price level may rise, fall or stays the same the effect of change in price will depend on the magnitude of the AS or AD curve if the increase in AD is more than AS then price will rise or vice versa.

4) According to the AD/AS model, an increase in the price level with a corresponding reduction in real GDP could be created by natural disasters such as floods, hurricanes, unusually dry weather or pandemics that kill labourers - This statement is true because due to natural disasters there would be a change in supply curve it will shift to the left and price level will rise and real GDP will fall.

5) If the long-run aggregate supply curve shifts right, then the price level will decrease and real output will increase if the aggregate demand curve is stationary - This statement is True.

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