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When potential GDP increases the potential GDP line and the aggregate supply curve?
When potential GDP increases, the potential GDP line shifts to the right, indicating a higher level of output that the economy can sustain over the long term without causing inflation. This shift can occur due to factors such as technological advancements, increases in the labor force, or improvements in productivity. Consequently, the aggregate supply curve also shifts to the right, reflecting the economy's enhanced capacity to produce goods and services at various price levels. Overall, this results in a greater potential for economic growth and stability.
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What happens to the aggregate supply curve as the price level increases?
Firms have more of an incentive to increase output
Fiscal and monetary policies are used to shift the aggregate supply curve or the aggregate demand curve?
Aggregate demand curve.
Can the aggregate demand curve move independently of the aggregate supply curve?
Yes, the aggregate demand curve can move independently of the aggregate supply curve. Factors such as changes in consumer confidence, monetary policy, and fiscal policy can shift the aggregate demand curve without directly affecting aggregate supply. For example, an increase in government spending can boost aggregate demand while aggregate supply remains unchanged in the short term. However, over time, changes in demand can influence supply as businesses adjust to new economic conditions.
Using the AD-AS framework what is the impact on equilibrium price and output when there are increase in aggregate demand and aggregate supply simultaneously?
AD-AS represents aggregate demand curve (AD) and aggregate supply curve (AS). "In the aggregate demand-aggregate supply model, each point on the aggregate demand curve is an outcome of the IS-LM model for aggregate demand Y based on a particular price level. Starting from one point on the aggregate demand curve, at a particular price level and a quantity of aggregate demand implied by the IS-LM model for that price level, if one considers a higher potential price level, in the IS-LM model the real money supply M/P will be lower and hence the LM curve will be shifted higher, leading to lower aggregate demand; hence at the higher price level the level of aggregate demand is lower, so the aggregate demand curve is negatively sloped
Why the aggregate supply curve has its particular shape?
The aggregate supply curve is positively sloped because at a higher price level, producers are more willing to supply more real output.
What happens to the aggregate supply curve as the price level increases?
Firms have more of an incentive to increase output
Fiscal and monetary policies are used to shift the aggregate supply curve or the aggregate demand curve?
Aggregate demand curve.
Aggregate demand and Aggregate supply curve?
The aggregate demand curve show what consumers are willing to buy at a given price level, whereas the aggregate supply curve shows what producers are willing to produce at a given price level.
Can the aggregate demand curve move independently of the aggregate supply curve?
Yes, the aggregate demand curve can move independently of the aggregate supply curve. Factors such as changes in consumer confidence, monetary policy, and fiscal policy can shift the aggregate demand curve without directly affecting aggregate supply. For example, an increase in government spending can boost aggregate demand while aggregate supply remains unchanged in the short term. However, over time, changes in demand can influence supply as businesses adjust to new economic conditions.
Using the AD-AS framework what is the impact on equilibrium price and output when there are increase in aggregate demand and aggregate supply simultaneously?
AD-AS represents aggregate demand curve (AD) and aggregate supply curve (AS). "In the aggregate demand-aggregate supply model, each point on the aggregate demand curve is an outcome of the IS-LM model for aggregate demand Y based on a particular price level. Starting from one point on the aggregate demand curve, at a particular price level and a quantity of aggregate demand implied by the IS-LM model for that price level, if one considers a higher potential price level, in the IS-LM model the real money supply M/P will be lower and hence the LM curve will be shifted higher, leading to lower aggregate demand; hence at the higher price level the level of aggregate demand is lower, so the aggregate demand curve is negatively sloped
Why the aggregate supply curve has its particular shape?
The aggregate supply curve is positively sloped because at a higher price level, producers are more willing to supply more real output.
Why does the slope of the aggregate supply curve change from the short run to the long run?
Aggregate supply is a measure of the total goods and services produced by an economy at various price levels, either in the short run or in the long run. Short run aggregate supply curve is assumed to be upward sloping. Higher prices for goods and services means more profit for suppliers, so they will produce more goods and services. Long run aggregate supply curve is assumed to be vertical. Short run aggregate supply curve is curved because prices can change. A change in the price level means a movement along the short run aggregate supply curve. An increase in costs results in a fall in aggregate supply because the output is less at every price level. A decrease in costs results in a rise in aggregate supply because the output is more at every price level. In the long run, the aggregate supply is assumed to be independent of price level. In other words, the economy is at the maximum output possible. Full employment level has been reached and real GDP has reached its maximum potential, so the long run aggregate supply curve must be drawn as vertical. Increases in the quality and number of factors of production will cause the productivity of the suppliers to increase, and the long run aggregate supply will shift right.
Is the long run aggregate supply curve upward sloping?
No, the long-run aggregate supply (LRAS) curve is typically depicted as vertical. This indicates that in the long run, the total output of an economy is determined by factors such as technology, resources, and labor, rather than the price level. In contrast, the short-run aggregate supply (SRAS) curve is upward sloping due to price and wage stickiness, allowing for temporary increases in output in response to higher demand.
Ceteris paribus the price level will fall when A The aggregate supply curve shifts to the left B The aggregate demand curve shifts to the left C The aggregate demand curve shifts to the right?
b
According to aggregate supply curve what happens as the price level increases?
firms have more of an incentive to increase output
When human capital increases what does aggregate supply do?
When human capital increases, aggregate supply tends to rise as well. This is because a more educated and skilled workforce can lead to greater productivity and efficiency in production processes. As workers become more capable, firms can produce more goods and services at lower costs, shifting the aggregate supply curve to the right. Ultimately, this can contribute to economic growth and improved living standards.
In which range of the aggregate supply curve is the price level constant?
Horizontal.
