ECONOMICS (CBSE/UGC NET)

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ECONOMICS

AGGREGATE DEMAND

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate of output and everything else held constant, the development of a new, more productive technology will cause ____ in the unemployment rate in the long run and ____ in inflation in the short run.
A
an increase; an increase
B
no change; no change
C
a decrease; a decrease
D
no change; a decrease
Explanation: 

Detailed explanation-1: -How much an economy is able to produce ultimately depends on that country’s resources. In the lesson on short-run aggregate supply, we learned that producers respond to changes in the price level in the short-run, which is why we have the SRAS curve.

Detailed explanation-2: -An economy’s natural level of output occurs when all available resources are used efficiently. It equals the highest level of production an economy can sustain. It is “natural” because an economy returns to its natural level of output following a recession or overheated period.

Detailed explanation-3: -Which of the following best explains how recessionary gaps in the economy are fixed by self-adjustment in the long run? The decrease in wages will increase the short-run aggregate supply and increase output to the full employment level.

Detailed explanation-4: -When the economy is at the natural rate of unemployment, it is said to be at the “full employment” level and to have reached its potential real GDP.

There is 1 question to complete.
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