Refer to the following figure to answer the NEXT THREE QUESTIONS Price level LRA

Question

Refer to the following figure to answer the NEXT THREE QUESTIONS Price level LRAS LRAS SRAS1 SRAS AD2 AD Real GDP CY) 25. Based on the figure, which of the following would cause the long-run equilibrium point to change from point B to point D? a. The population has aged and there are fewer people in the labor force. b. Firms and workers expected the price level to rise. c. The economy experienced an increase in government spending. d. The economy was in an expansion and has adjusted. e. The country's overall productivity increased 26. Based on the figure, which of the following would cause the aggregate demand curve to shift from AD2 to AD1? a. The economy has been producing more than its full employment output level and wages and input prices begin to rise. b. There is an increase in the price of oil. c. There is an increase in the general price level that reduces real wealth. d. There is a reduction in consumer confidence about future growth in the economy. e. There is a reduction in income tax rates

Explanation / Answer

1- the long run outcome is affected by the change in the position of the long run supply curve, the long run supply curve shifts due to change in real variable like increase in productivity here, not due to variables like wages etc.

so answer is E

2- now aggregate demand curve shifts from ad2 to ad1 i.e in leftward direction because , here if consumer confidence is reduced then the consumption in the economy is reduced which further decrease the aggregate demand.

so answer is D

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