ECONOMICS (CBSE/UGC NET)

ECONOMICS

AGGREGATE DEMAND

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
when Aggregate Supply(AS) is highly elastic, the multiplier is likely to be ____
A
High
B
Low
C
Equal to AS
D
Unchanged
Explanation: 

Detailed explanation-1: -The long-run aggregate supply (LRAS) curve of the model is a vertical line. This is due to how, in Keynesian economics, economies are elastic in the long run. This means that as an economy determines what goods are in demand, it can perfectly adjust if given enough time.

Detailed explanation-2: -The aggregate supply curve shifts to the right as productivity increases or the price of key inputs falls, making a combination of lower inflation, higher output, and lower unemployment possible.

Detailed explanation-3: -In the most general sense (and assuming ceteris paribus conditions), an increase in aggregate demand corresponds with an increase in the price level; conversely, a decrease in aggregate demand corresponds with a lower price level.

Detailed explanation-4: -Answer and Explanation: The aggregate supply would be most possible to increase when the increase in productivity is there, and it increases the aggregate demand curve.

There is 1 question to complete.