According to the AD-AS (Aggregate Demand-Aggregate Supply) Model, which of the following statements is true?A.A) An increase in government spending will always result in higher inflation and output in the short run.B.A shift to the left of the short-run aggregate supply curve will lead to higher long-run economic growth.C.An increase in aggregate demand will only affect the price level in the long run, not in the short run.D.A decrease in the money supply will shift the aggregate demand curve to the right.
Question
According to the AD-AS (Aggregate Demand-Aggregate Supply) Model, which of the following statements is true?A.A) An increase in government spending will always result in higher inflation and output in the short run.B.A shift to the left of the short-run aggregate supply curve will lead to higher long-run economic growth.C.An increase in aggregate demand will only affect the price level in the long run, not in the short run.D.A decrease in the money supply will shift the aggregate demand curve to the right.
Solution
The correct statement according to the AD-AS (Aggregate Demand-Aggregate Supply) Model is A) An increase in government spending will always result in higher inflation and output in the short run.
Here's why:
A) An increase in government spending increases aggregate demand. According to the AD-AS model, an increase in aggregate demand in the short run leads to an increase in both the price level (inflation) and real GDP (output).
B) A shift to the left of the short-run aggregate supply curve indicates a decrease in the total quantity of goods and services supplied at every price level. This does not necessarily lead to higher long-run economic growth.
C) An increase in aggregate demand affects both the price level and real GDP in the short run, not just the price level in the long run.
D) A decrease in the money supply would actually shift the aggregate demand curve to the left, not the right, because there would be less money available for spending, which decreases aggregate demand.
Similar Questions
In the AD-AS model(aggregate demand-aggregate supply), what is expected to happen if the government adopts expansionary fiscal policy while the central bank adopts contractionary monetary policy?A.Inflation rises in the short run，output falls in the long runB.Deflation rises in the short run, output rises in the long runC.Inflation rises in the short run, output rises in the long runD.Deflation rises in the short run, output falls in the long run
In the AD-AS Model, if the central bank implements an expansionary monetary policy (such as lowering interest rates), which of the following options most accurately describes the short-term changes in the Aggregate Demand (AD) curve and the Short-Run Aggregate Supply (SRAS) curve?A.AD shifts to the right; SRAS remains unchanged.B.AD shifts to the left; SRAS shifts to the right.C.AD remains unchanged; SRAS shifts to the left.D.AD shifts to the right; SRAS shifts to the left.
In the AD-AS (Aggregate Demand - Aggregate Supply) model, assume the economy is initially at a long-run equilibrium. Suddenly, a major technological breakthrough occurs, leading to higher productivity across industries. Which of the following is the most likely immediate result in the AD-AS model?A.Aggregate demand (AD) shifts to the right.B.Aggregate supply (AS) shifts to the right.C.Aggregate demand (AD) shifts to the left.D.Aggregate supply (AS) shifts to the left.
In the AD-AS model, a simultaneous increase in consumer confidence (leading to more consumption) and a technological breakthrough (leading to more productive capabilities) will have which of the following effects on the Aggregate Demand (AD) curve and the Long-Run Aggregate Supply (LRAS) curve?This is a multi answer question. You can select one or more options as the answer.A.AD shifts to the right; LRAS remains unchanged.B.AD shifts to the left; LRAS shifts to the right.C.AD shifts to the right; LRAS shifts to the right.D.AD remains unchanged; LRAS shifts to the left.
Which assumption is correct?A.An increase in the interest rate will shift the AD curve to the right.B.The impact of the negative supply shock will shift the SRAS upward.C.Changes in the price level can shift the AD curve.D.The short run aggregate supply curve is vertical.
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