ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The government reduces the production subsidy to domestic producers.
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A natural disaster destroys a large area of land.
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The government raises the profits tax rate.
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The economy is in recession.
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Detailed explanation-1: -An increase in the production factors causes the curve to shift to the right, while a decline in the production factors will lead to a leftward shift. The primary production factors that cause the changes in the LRAS curve include labor productivity levels, workforce size, capital size, and education levels.
Detailed explanation-2: -Supply shock causes a shift in the aggregate supply curve. The SRAS curve is affected by subsidies, productivity, input prices, taxes, and expectations. The LRAS curve is affected by labor, capital, and technology.
Detailed explanation-3: -An increase in the expected price level reduces the quantity of goods and services supplied and shifts the short-run aggregate supply curve to the left.
Detailed explanation-4: -Short answer: Yes, the SRAS curve will shift after the LRAS shifts to return the short-run equilibrium (SRAS/AD) back in line with the long-run equilibrium (LRAS/AD).