Question

For a given AD curve, a reduction in the availability of labor or raw materials would cause the short run aggregate supply to shift to the left which would cause prices to fall and output to increase in the short run.

Select one:

True

False

According to the AD/AS model, an economic contraction caused by a leftward shift of aggregate demand remedies itself over time as the expected price level falls, shifting the short run aggregate supply rightward.

Select one:

True

False

According to the AD/AS model, if the long-run aggregate supply curve is vertical then the economy will always return to the level of output that occurs when the rate of unemployment is at its natural level.

Select one:

True

False

The sticky price theory of short-run aggregate supply says that when the price level falls unexpectedly, some firms will have higher than desired prices which increases their sales.

Select one:

True

False

As the United States entered World War II in the early 1940s, the U.S government increased military expenditures that caused the aggregate demand curve in the U.S. to shift to the left and that caused the rate of unemployment to rise to historic levels.

Select one:

True

False

Answer 1

Answer 1) This statement is False because a reduction in the availability of labor leads to leftward shift in the aggregate supply curve which leads to increase in price and fall in output.

Answer 2) This statement is True, a contraction leads to leftward shift AD curve leads to decrease in price level which reduces price expectations and leads to rightward shift in supply curve.

Answer 3) This statement is True because if long run aggregate supply is vertical and remains at full employment level and if there is any fluctuations in output then in long run it will return to full employment level.

Answer 4) This statement is False because According to sticky price theory, short run aggregate supply curve is horizontal so if there is any unexpected increase in prices ot will lead to infinitely change in output.

Answer 5) This statement is False because if US government increase military expenditure then it will lead to rightward shift in AD curve that cause military expenditure to fall im short run.

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