Question

1.

.	(Figure: Determining SRAS Shifts) If there are advances in technology, the short-run aggregate supply curve will shift from SRAS0 to _____ and the price level will shift to _____. SRASZ SRAS. SRAS, - Aggregate Price Level (P) - - - - - - - AD Aggregate Output (Q)
	SRAS1; P0 SRAS2; P2 SRAS2; P1 SRAS1; P1

2.

Simultaneous recession and deflation can be explained by:
	a decrease in aggregate supply. an increase in aggregate supply. a decrease in aggregate demand. an increase in aggregate demand.

3.

Which is a determinant of aggregate supply?
	household expectations prices of substitutes interest rates productivity

4.

Which of the following will NOT shift the aggregate supply curve to the left?
	an increase in the minimum wage an increase in the legislated amount of paid vacation an increase in the price of crude oil a decrease in corporate taxes

5.

	The short-run aggregate supply curve is positively sloped because:
	all variables are fixed in the short run. a short-run increase in GDP usually is accompanied by a rise in the price level. a short-run increase in GDP usually is accompanied by a slower rise in the price level. many input prices are slow to change in the short run.

Answer 1

1) SRAS₁; P₁. This is because technical advancement will raise productivity of resources and increase production. As a result the SRAS will shift to the right. Price is reduced to P1 and output is increased to Q1

2) a decrease in aggregate demand. When AD shifts to the left, GDP declines showing recession and at the same time price level declines showing deflation

3) productivity. Changes in productivity will change production given the resources. This directly affects the aggregate supply

4) a decrease in corporate taxes. If supply side policies are used, then this is likely to shift SRAS to the right

5) a short-run increase in GDP usually is accompanied by a rise in the price level.