Which of the following must be true in the long run? Production increases when prices increase. An increase in the price level reduces aggregate demand. The natural rate of unemployment is not affected by changes in production capacity. Full employment increases when price level decreases. Prices and wages are flexible.
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Which of the following must be true in the long run?
- Production increases when prices increase.
- An increase in the
price level reduces aggregate demand. - The natural rate of
unemployment is not affected by changes in production capacity. - Full employment increases when price level decreases.
- Prices and wages are flexible.
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- The aggregate supply curve is upward sloping in the short-run because of the Profit effect which says the rate of output will increase as the price level increases. Profit effect which says higher input costs will cause an increase in the rate of output. Cost effect which says the rate of output will increase if production costs increase. Cost effect which says higher input costs will cause an increase in the rate of inputs. Inflation effect which says that everything costs more because U.S. debt is so large.The following events have occurred in the history of the United States: A deep recession hits the world economy. The world oil price rises sharply. U.S. businesses expect future profits to fall. Explain the combined effects of these events on U.S. real GDP and the price level,starting from a position of long-run equilibrium.Researchers in an oil producing country discover a cost effective method using existing levels of capital and labour to extract large amounts of petroleum resources that were previously inaccessible. All else equal, which of the following will most likely occur. Select one: The long run aggregate supply curve will shift to the left The long run aggregate supply curve will shift to the right The aggregate demand curve will shift to the left The aggregate demand curve will shift to the right
- Economists believe that the determines the price level in the long run. Money supply Money demand Supply of government securities Demand for government securitiesPessimism (suggestion: draw the AS-AD diagram to help your analysis and start with the long-run and short-run equilibrium, i.e. the intersection of LRAS, SRAS and AD curves) Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time. Refer to Pessimism. How is the new long-run equilibrium different from the original one? O 1) both price and real GDP are higher. 2) both price and real GDP are lower. 3) the price level is the same and GDP is lower. 4) the price level is lower and real GDP is the same.An increase in productivity will: Multiple Choice increase aggregate supply. increase aggregate supply and aggregate demand. decrease aggregate supply and aggregate demand. increase aggregate demand.
- The aggregate supply curve A) is a market supply curve. B) relates output with the price level. C) embodies the same logic that lies behind an individual firm's supply curve. D) is the sum of the individual supply curves in the economyFirm X, a leading manufacturer of rubber tires in country A, caters to almost one-third of the domestic tire market. The country was hit by a recession last year that caused the national output growth to be negative. Simon Reeds, the CEO of firm X, feels that these fluctuations in the business environment are short-lived and expects the economy to recover very soon. In spite of the recession, Simon feels that the firm can actually invest in expanding its facilities as it has sufficient cash flows to continue its operation during the crisis period. The firm's marketing head, Sandra Jones, counters this by saying that the firm is already losing sales due to the recession and they should not increase costs further by making large-scale investments in the present climate. Which of the following, if true, would support the CEO's claim? A. The government recently announced a plan to offer incentives to buyers in the car and household appliances market. B.…Firm X, a leading manufacturer of rubber tires in country A, caters to almost one-third of the domestic tire market. The country was hit by a recession last year that caused the national output growth to be negative. Simon Reeds, the CEO of firm X, feels that these fluctuations in the business environment are short-lived and expects the economy to recover very soon. In spite of the recession, Simon feels that the firm can actually invest in expanding its facilities as it has sufficient cash flows to continue its operation during the crisis period. The firm's marketing head, Sandra Jones, counters this by saying that the firm is already losing sales due to the recession and they should not increase costs further by making large-scale investments in the present climate. Which of the following, if true, would support the marketing head's claim? A. In the previous recession, a leading player in the hospitality sector had expanded its facilities but was unable…
- Full employment output is the level of output that firms in the economy supply when A- all capital is fully utilized B- the unemployment rate is zero C- taxes are zero D- consumption decreases and saving decreasesAn increase in the price level causes the aggregate supply curve to shift to another supply schedule. True or FalseThe following events have occurred in the history of the United States: A deep recession hits the world economy. The world oil price rises sharply. S. businesses expect future profits to fall. Explain the separate effects of each event on U.S. real GDP and the price level, starting from a position of long-run equilibrium.