Question

A. Why does there seem to be three different Aggregate Supply curves in the Aggregate Supply/Aggregate Demand models?

		The Aggregate Supply curve changes depending the time of year.
		The Aggregate Supply curve usually is upward sloping
		The Aggregate Supply curve usually trends toward equilibrium
		The Aggregate Supply/Aggregate Demand model can have any of the three supply lines, depending on economic circumstances.

B. If the Aggregate Supply line is shown as a vertical line:

		The economy is at less than full employment, and inflation will rise if demand rises.
		The economy is at full employment, and inflation will fall if demand rises.
		The economy is at less than full employment, and inflation will rise if demand falls.
		The economy is at full employment, and inflation will rise if demand rises.

C. When the economy is at full capacity:

		The economy is at full potential GDP, and inflation may fall
		The economy is at less than full potential employment, and inflation could rise or fall.
		The economy is at less than full potential employment, and inflation may rise
		The economy is at full potential GDP, and inflation may rise

Answer 1

1. Option D

Aggregate supplybis the total real output produced at each price level. There is direct or positive relationship between the Price Level and GDP.Higher prices encourage more production. In the immediate short run the shape of aggregate supply curve is horizontal. There us no time fir prices to adjust. Thus is situation of sticky prices. The short run AS curve is downward sloping. Prices can fluctuate to some degree. Input prices are typically thought of as fixed (contracts, wage agreements, etc). Output prices are variable as firms, when given enough time, can raise their prices to some degree. The long run AS curve is vertical. Prices fully fluctuate while output is at its maximum level (Full Employment Level). Input prices are flexible given enough time. Output prices are fully flexible when firms can consider long run trends in their costs and demand

2. Option D

Long run aggregate supply (LRAS) curve is a vertical line representing the real output of goods and services after full adjustment has occurred. It can also be viewed as representing the real GDP of the economy under conditions of full employment—the full-employment level of real GDP. At higher levels of output the price level increase dramatically resulting in high inflation.

3.Option D

Full employment GDP is a term used to describe an economy that is operating at an ideal level of employment, where economic output is at its highest potential. It is a state of balance in which savings is equal to investment and the economy is neither expanding too rapidly nor falling into a recession. This level of economic output, as measured by real GDP, is neither too high to cause rising inflation nor too low to bring about falling prices.Full-employment can lead to inflationary pressures within an economy as high demand for goods and services leads to higher demand-pull inflation. And increasing demand for factor resources drives their prices up too - leading to cost-push inflation.