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.
Question
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.
Solution
The correct assumption is B. The impact of the negative supply shock will shift the SRAS (Short Run Aggregate Supply) upward.
Here's why:
A. An increase in the interest rate will not shift the AD (Aggregate Demand) curve to the right. Instead, it will shift it to the left because higher interest rates make borrowing more expensive, which reduces spending and thus decreases aggregate demand.
B. A negative supply shock, such as a sudden increase in the price of an important input, reduces the amount of output that can be produced at any given price level, shifting the SRAS curve upward or to the left.
C. Changes in the price level do not shift the AD curve. Instead, they move along the AD curve. The AD curve shifts due to changes in factors other than the price level, such as changes in consumer or government spending, investment, or net exports.
D. The short run aggregate supply curve is not vertical, it is upward sloping. This is because in the short run, as prices increase, producers are typically willing to supply more because they can achieve higher revenues. The long run aggregate supply curve is vertical because it represents the economy's maximum sustainable output level, which is determined by factors such as technology and resources, not the price level.
Similar Questions
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 Aggregate Demand-Aggregate Supply (AD-AS) model, consider an economy that is initially in long-run equilibrium. Which of the following events is most likely to cause both a leftward shift in the AD curve and a leftward shift in the SRAS (Short-Run Aggregate Supply) curve?This is a multi answer question. You can select one or more options as the answer.A.A global technological breakthrough that benefits all industries.B.A sudden and significant increase in global oil prices.C.A decrease in general consumer confidence across the economy.D.A broad reduction in import tariffs by the government.
Within the context of the AD-AS Model, if there is a technological breakthrough that boosts productivity across all sectors of an economy, what is the immediate expected impact on the Short-Run Aggregate Supply (SRAS) curve?A.The SRAS curve will shift to the right.B.The SRAS curve will shift to the left.C.The SRAS curve will remain unchangedD.The direction of the SRAS shift is unpredictable.
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.
When the economy experiences a permanent positive supply side shock that shifts the long-run aggregate supply to the right, the short run aggregate supply curve: Question 2Select one:A.Will begin by shifting left, and then be pulled right by the long-run aggregate supply over time.B.None of these adjustments will occur.C.Will gradually shift right until it reaches long-run aggregate supply and the new long-run equilibrium.D.Will instantly shift right with the long-run aggregate supply to the new long-run equilibrium.
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.