- Which of the following components of aggregate supply can be changed in the short run. Labor, Capital, or Technology? 2) True or False: The equilibrium between aggregate supply and aggregate demand determines the economy’s level of potential GDP? 3) True or False: When the supply and demand for Labor is at equilibrium, the economy is at its full level of employment which is also the long run aggregate supply. 4) The long run aggregate supply curve is a vertical line. Regarding movements up the LAS, what do you assume accompanies and increase in prices? 5) Why is the short run aggregate supply curve an upward sloping curve compared to the long run aggregate supply curve – what have we assumed is ‘sticky’? 6) True or false: In the short run, and increase in price will bring an increase in potential GDP? 7) Which item(s) would lead to an shift in both the long and short run supply curves to the left representing an increase in potential GDP. Replacement of high school degree labor force with college graduates; a new, high speed mill; decrease in expected inflation. 8) Match the following changes with the resultant curve movements. A) Price Increase B) Price and Wage Increase C) Technology Increase i) Movement along the LAS curve ii) Shift of the LAS curve iii) Movement along the SAS curve. Bonus: True or false. In an economy experiencing high rates of inflation, union worked benefit from locking in wage rates for the year? Answers in a few…
Wow. Not many takers for Economics… --------------------------------- 1) Which of the following components of aggregate supply can be changed in the short run. Labor, Capital, or Technology? Only labor can change in the short run. 2) True or False: The equilibrium between aggregate supply and aggregate demand determines the economy’s level of potential GDP? False. The equilibrium point between aggregate supply (the SAS curve) and aggregate demand determines the economy’s level of REAL GDP. 3) True or False: When the supply and demand for Labor is at equilibrium, the economy is at its full level of employment which is also the long run aggregate supply. True. These are the conditions for ‘full employment’ which determines potential GDP. 4) The long run aggregate supply curve is a vertical line. Regarding movements up the LAS, what do you assume accompanies and increase in prices? An increase in price will, in the long run, be equalized by a proportional increase in wages. This results in a movement up the LAS curve. Output does not change - just price. 5) Why is the short run aggregate supply curve an upward sloping curve compared to the long run aggregate supply curve – what have we assumed is ‘sticky’? In the short run, we assume that wages are sticky. As a result, companies are willing to supply more output because they do not face increasing wage costs. 6) True or false: In the short run, and increase in price will bring an increase in potential GDP? False: Potential GDP will not change as a result of changes in price in the short run. 7) Which item(s) would lead to an shift in both the long and short run supply curves to the left representing an increase in potential GDP. Replacement of high school degree labor force with college graduates; a new, high speed mill; decrease in expected inflation. All options except a decrease in expected inflation. A decrease in expected inflation slows the growth of the money wage rate. This causes a shift of the SAS curve to the right. However, the LAS does not move. Wage rates have no impact on potential GDP… only real GDP. 8) Match the following changes with the resultant curve movements. A) Price Increase iii) Movement along the SAS curve. B) Price and Wage Increase i) Movement along the LAS curve C) Technology Increase ii) Shift of the LAS curve Bonus: True or false. In an economy experiencing high rates of inflation, union worked benefit from locking in wage rates for the year? False. Locking in wage rates in an inflationary environment results in a decrease in the worker’s buying power over the course of the year. By contrast, firms will likely increase production in the short run since wages are sticky, increasing both output and price and moving real gdp to a level that exceeds potential GDP. When the wage rates reset to reflect the current higher price environment, the SAS curve will move back to the right, prices will increase further, and real gdp will settle back to it’s original level equal to potential GDP.
- Which of the following components of aggregate supply can be changed in the short run. Labor, Capital, or Technology? **** labor. 2) True or False: The equilibrium between aggregate supply and aggregate demand determines the economy’s level of potential GDP? **** No. 3) True or False: When the supply and demand for Labor is at equilibrium, the economy is at its full level of employment which is also the long run aggregate supply. **** no. 4) The long run aggregate supply curve is a vertical line. Regarding movements up the LAS, what do you assume accompanies and increase in prices? **** inflation. 5) Why is the short run aggregate supply curve an upward sloping curve compared to the long run aggregate supply curve – what have we assumed is ‘sticky’? **** price. 6) True or false: In the short run, and increase in price will bring an increase in potential GDP? **** no. 7) Which item(s) would lead to an shift in both the long and short run supply curves to the left representing an increase in potential GDP. Replacement of high school degree labor force with college graduates; a new, high speed mill; decrease in expected inflation. **** left shift is decrease in GDP not increase. 8) Match the following changes with the resultant curve movements. A) Price Increase B) Price and Wage Increase C) Technology Increase i) Movement along the LAS curve ii) Shift of the LAS curve iii) Movement along the SAS curve. **** A and iii ****B and i ****C and ii Bonus: True or false. In an economy experiencing high rates of inflation, union worked benefit from locking in wage rates for the year? **** no.
- Which of the following components of aggregate supply can be changed in the short run. Labor, Capital, or Technology? Not Sure… None ??? 2) True or False: The equilibrium between aggregate supply and aggregate demand determines the economy’s level of potential GDP? Depends. The short run Eq will not, the long run eq will !!! 3) True or False: When the supply and demand for Labor is at equilibrium, the economy is at its full level of employment which is also the long run aggregate supply. No, it may be less than or more than LRAS 4) The long run aggregate supply curve is a vertical line. Regarding movements up the LAS, what do you assume accompanies and increase in prices? Resource prices increase in the same proportion 5) Why is the short run aggregate supply curve an upward sloping curve compared to the long run aggregate supply curve – what have we assumed is ‘sticky’? The resource prices donot change immediately !!! 6) True or false: In the short run, and increase in price will bring an increase in potential GDP? False… 7) Which item(s) would lead to an shift in both the long and short run supply curves to the left representing an increase in potential GDP. Replacement of high school degree labor force with college graduates; a new, high speed mill; decrease in expected inflation. All except the third… 8) Match the following changes with the resultant curve movements. A) Price Increase - Movement along SRAS B) Price and Wage Increase - Shift of SRAS to the left and upwards C) Technology Increase - Shift of Demand both LRAS i) Movement along the LAS curve ii) Shift of the LAS curve iii) Movement along the SAS curve. Bonus: True or false. In an economy experiencing high rates of inflation, union worked benefit from locking in wage rates for the year? False Answers in a few…
The answer to i) is labor but what about the others?? How many did I get wrong???
Check my second post with the answers.