Assume the economy is in long-run equilibrium. Now assume that there is a large

Question

Assume the economy is in long-run equilibrium. Now assume that there is a large increase in demand for U.S. exports As a result of increased demand for U.S. exports, the O A. aggregate demand curve will shift left. B. ° C. aggregate demand curve will shift right. O D. long-run aggregate supply curve will shift left. The new short-run equilibrium will be short-run aggregate supply curve will shift left O A. where the new aggregate demand curve intersects the original aggregate demand curve O B. where the new aggregate demand curve intersects the original short-run aggregate supply curve ° C. where the new aggregate demand curve intersects the original long-run aggregate supply curve D. where the original aggregate demand curve intersects the original short-run aggregate supply curve At the new short run equilibrium, the unemployment rate will increase in exports Which of the following best explains how the economy will adjust back to long-run equilibrium? compared to the unemployment rate at the initial equilibrium, prior to the A. Short-run aggregate supply will decrease (shift leftward) as firms and workers adjust to the new price level. O B. Aggregate demand will increase, restoring the original equilibrium price and quantity ° C. Short-run aggregate supply will increase (shift rightward) as firms and workers adjust to the new price level O D. Aggregate demand will decrease, restoring the original equilibrium price and quantity At the new long-run equilibrium ( A. real GDP, the unemployment rate and the price level all will remain the same compared to the initial equilibrium, prior to the increase in exports. O B. real GDP and the price level will be higher but the unemployment rate will remain the same compared to the initial equilibrium, prior to the increase in exports ° C. real GDP and price level will be higher and the unemployment rate will be lower compared to the initial equilibrium, prior to the increase in exports. ( D. real GDP and the unemployment rate will remain the same, but price level will be higher compared to the initial equilibrium, prior to the increase in exports

Explanation / Answer

- C is correct

Aggregate demand shifts to the right due to increase in net exports.

- B is correct

At new equilibrium, new AD intersects original SRAS.

at the new short run equilibrium the unemployment rate will decrease or be lower

- A is correct

Short run aggregate supply will decrease in the long run to adjust to increase in wages.

- D is correct

At new long run equilibrium, price level will be higher, other variables will remain the same.

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