ECONOMICS
AGGREGATE SUPPLY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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a movement along both its aggregate demand curve and long-run aggregate supply
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a movement along its aggregate demand curve and a shift in its long-run aggregatesupply curve.
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a shift in its aggregate demand curve and a movement along its long-run aggregatesupply curve.
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a shift in both its aggregate demand curve and long-run aggregate supply curve.
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Detailed explanation-1: -Keynesian theory explains the reduction in welfare by a failure in economic coordination: because wages and prices do not adjust instantaneously to equate supply and demand in all markets, some gains from trade go unrealized in a recession. In contrast, real business cycle theory allows no unrealized gains from trade.
Detailed explanation-2: -Which of the following best describes how wages respond to changes in the price level in the long run? Wages, as well as other input prices, can adjust to the price level in the long run. This is what makes long-run aggregate supply vertical.
Detailed explanation-3: -An increase in the money supply, and increase in government purchases, and a cut in personal taxes all cause the aggregate demand curve to shift to the right.
Detailed explanation-4: -The Keynesian theory implied that during a recession inflationary pressures are low, but when the level of output is at or even pushing beyond potential gross domestic product, or GDP, the economy is at greater risk for inflation.