Reading 23: Aggregate Supply and Aggregate Demand LOSA习题精 日志

honeycfa

LOS a: Explain the factors that influence real GDP and long-run and short-run aggregate supply, explain movement along the long-run and short-run aggregate supply curves (LAS and SAS), and discuss the reasons for changes in potential GDP and aggregate supply.

Which of the following events is least likely to cause a downward shift in short-run aggregate supply?

A) A labor stoppage causes the price of steel to rise.

B) Inflation increases from 4% to 7%.

C) Oil exporting countries reduce their production levels.

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Changes in the price level represent movement along the short-run aggregate supply curve. The other items listed are events that are likely to shift the short-run aggregate supply curve to the left (decrease SRAS).

 

honeycfa

At a recent board meeting of Pembroke Financial Inc., members of the board were discussing recent fiscal and monetary policy changes in the U.S. It became a heated discussion when each member expressed their opinions on what will be happening to long-run aggregate supply (LAS), aggregate demand, and the overall economy as a result of policy shifts. Joe Frankel and Martin Bentz, two vocal members of the board, made the following statements during the meeting:

Frankel: LAS can be thought of as the potential GDP of the economy. Potential GDP is positively related to the quantity of labor in the economy and the technology level of the economy, but is inversely related to the quantity of capital in the economy. So, potential GDP will rise if the quantity of labor increases, the level of technology increases, or the quantity of capital decreases.

Bentz: The level of real output on the LAS curve is the economy’s level of production when it is operating at zero unemployment. A zero unemployment rate is referred to as full employment.

With respect to these statements:

A) only Bentz is incorrect.

B) both are incorrect.

C) only Frankel is incorrect.

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LAS can be thought of as the potential real output of the economy. The potential real output of an economy is positively related to: the quantity of labor in the economy; the quantity of capital (productive resources) in the economy, and the technology that the economy possesses.

The level of real output (real GDP) on the LAS curve is the economy’s level of production when the economy is operating at full employment. However, full employment does not mean zero unemployment. There will always be some unemployment. Therefore, there is a natural rate of unemployment corresponding to the level of real GDP along the LAS curve, and that level is referred to as full employment GDP.

honeycfa

Which of the following factors is most likely to increase long-run aggregate supply?

A) Wage rates increase.

B) The average rate of labor productivity increases.

C) Aggregate demand decreases.

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Factors that shift the long-run aggregate supply curve (LAS) to the right include improvements in technology and productivity, increases in the supply of resources, and institutional changes that increase the efficiency of resource use. An increase in the productivity of the average worker is likely to shift the LAS curve to the right. Wage rate changes shift the short-run aggregate supply curve (SAS) but not the LAS curve. A decline in consumer demand would represent a move down the LAS curve but not a shift in LAS.

shxjm

thanks