Econ Final

The price level increases...(LRAS)

because this is a change in th eprice level, the LRAS curve will not change.

The labor forces increases....(LRAS)

because this is a change in the productive capacity of the economy, the LRAS will shift to the right

More capital accumulation will cause the long-run aggregate supply curve to

shift to the right.

There is an increase in the quantity of the capital goods...(LRAS)

Because this is a change in the productive capacity of the economy, the LRAS will shift to the right.

technology change occurs....(LRAS)

Because this is change in the productive capacity of the economy, the LRAS will shift to the right.

The short-run aggregate supply curve slopes upward because of

In the short run, as prices of final good and services increases, input prices react more slowly, some firms are slow to adjust their prices, thus their sales increases, and the price adjusts slowly due to the existence of menu costs. But NOT innthe short run, and unexpected change in the price of an importnt resource can change the cost to firms.

"the economy's potential to supply goods and services is determined by such things as labour force and capital stock, as well as inflation expectaions."

Incorrect since changes in the expected price level affect short run supply but not the long run aggregate supply.

Consider the following cases to figure out which one of the following variables causes the short-run aggregate supply curve to shift, and identify whether an increase in that variable will cause the short-run aggregate supply curve to shift to the right or left.

The SRAS curve will SHIFT TO THE RIGHT if there is AN INCREASE IN THE LABOR FORCE OF CAPITAL ACCUMULATION. The SRAS curve will SHIFT TO THE RIGHT if there in AN INCREASE IN PRODUCTIVITY. the SRAS curve will SHIFT TO THE RIGHT if there in A TECHNOLOGICAL CHANGE. The SRAS curve will SHIFT TO THE LEFT if there is an INCREASE IN THE EXPECTED PRICE OF AN IMPORTANT NATURAL RESOURCES. The SRAS curve will SHIFT LEFT if there is an INCREASE IN THE ADJUSTMENT OF WORKERS' AND FIRMS' PRIOR UNDERESTIMATION OF THE PRICE LEVEL or AN INCREASE IN EXPECTED FUTURE PRICES.

The short-run aggregate supply curve slopes upwards because the workers and firms fall to predict accurately the future price level. the three main explanations of why this failure results in an upward-sloping aggregate supply curve are that: 1) contracts make wages and prices "sticky'' 2) business often adjust wages slowly, and 3)menu costs make some prices "sticky". If there is a change in the price level, there will be movement along the aggregate supply curve.

The short-run aggregate supply curve slopes upwards because the workers and firms fall to predict accurately the future price level. the three main explanations of why this failure results in an upward-sloping aggregate supply curve are that: 1) contracts make wages and prices "sticky'' 2) business often adjust wages slowly, and 3)menu costs make some prices "sticky". If there is a change in the price level, there will be movement along the aggregate supply curve.

The long run aggregate supply curve is vertical because in the long run,

changes in the price level do not effect potential GDP, as potential GDP depends on the size of the labor force, capital stock, and technology.

An increase in what the price level is expected to be in the future will....

decrease( shift leftward) the SRAS curve because this is a change in the expectations about future prices

The price level that is currently higher than expected will...

decrease(Shift leftward) the SRAS curve because this is a change in an adjustment to part errors in expectations about future prices.

An unexpected increase in the price of an important raw material will...

decrease(shift leftward) the SRAS curve because this is a change in the price of an important natural resource

An increase in the labor force will...

increase( shift rightward) the SRAS curve because this is a change in the productive capacity of the economy.

An increase in the price level will...

not change the SRAS curve because this is a change in the price level