What is the immediate impact on the aggregate demand and aggregate supply model when there is...

What is the immediate impact on the aggregate demand and aggregate supply model when there is an increase in available capital?

*increase in the aggregate demand curve

*increase in the aggregate supply curve

*decrease in the aggregate demand curve

*decrease in the aggregate supply curve

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What is the immediate impact on the aggregate demand and aggregate supply model when there is an increase in productivity as a result of a technological change?

*decrease in the aggregate demand curve

*decrease in the aggregate supply curve

*increase in the aggregate demand curve

*increase in the aggregate supply curve

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Factor prices tend to:

*adjust faster than product prices

*depend mainly on government spending

*never change

*adjust slower than product prices

Solutions

Expert Solution

Capital and labor are two factors used in production. For an increase in capital, marginal product of labor rises and this causes production to increase. Hence we expect an increase in the aggregate supply curve

An increase in productivity, as mentioned, raises production. Hence, there is an increase in the aggregate supply curve

They adjust slower than product prices because products are bought and sold at first so that product prices are immediately change which then determine the contractual factor prices which can be change only after the expiry of the contract.

Rahul Sunny answered 1 year ago

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