7· In the diagram below the shift from AD1 to AD2 could have been caused by only

Question

7· In the diagram below the shift from AD1 to AD2 could have been caused by only ONE of the following: a) An increase in the level of exports b) A fall in the level of govemment spending c) An increasolappreciation in the dollar exchange rate ) A fall in Investment riefly explain your answer 8. All other things being equal, an increase in the productivity of labor in an economy wil lead to: a) an increase in the price level b) a rightward shift of the aggregate supply curve c) an increase in the rate of growth of the labor force d) a decline in the level of aggregate demand e) more than one efly explain your answer

Explanation / Answer

7) a) We know that AD = C + I + G + (X - M)

If C,I ,G or X increses then AD curve shifts to the right.

In this case exports increses.

8) b) a rightward shift of the aggregate supply curve.

Increase in labour productivity means same amout of output can be produced with fewer no of labour. wage incrases.

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