weighs equally and the total wil be counted out of 100. The below graph refers t

Question

weighs equally and the total wil be counted out of 100. The below graph refers to the next 5 questions Page 13 out of 17 Price level 2000 100) AAS SRAS Real GOP 62) What points in the above graph represent (long- or short run) macroeconomie equilibriums? a) A and D b) B and D c) A and B d) A and Cc c) A, B, C and D 63) Why is long run aggregate supply (LRAS) a vertical curve? a) Because long run aggregate supply is independent of the level of real GDP b) Because long run aggregate supply is independent of the price level c) Because long run aggregate supply is determined by the level of real GDP d) Because long run aggregate supply is determined by the price level 64) Suppose the economy is at point C. If investment decreases in the economy, where will the new long-run equilibrium be? a) A b) B c) c d)D 65) Suppose the economy is at point C. If the economy experiences a decline in the oil price (which is an input in production), where will the new short-rum equilibrium be? a) A b) B c) C d) D 66)[AG,e] Which point on the above graph corresponds to a short run macroeconomic equilibrium when the economy is in recession? a) A b) B c) C d) D e) None of the above

Explanation / Answer

62. The correct answer is: D)

Reason: because both points A and C are points of Equilibrium on the LRAS curve.

63. The correct answer is: B)

Reason: In the long run, all the real variables like output is independent of price level.

64. The correct answer is: A)

Reason: Due to decrease in investment, the aggregate demand decreases. The AD curve shifts downward and a new Equilibrium is restored at point A.

65. The correct answer is: A)

Reason: Due to decrease in oil prices, the cost o production decreases; production becomes more profitable and thus the supply increases. The supply curve shifts rightward and a new Equilibrium is restored at point A.

The correct answer is: B)

Reason: point B can be a point of recession as at point B, output is less than the full employment output and unemployment is higher than the natural rate.

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