03 Jun Part A 1. The long-run aggregate supply curve can never shift (Points :2)
Question
Part A
1. The long-run aggregate supply curve can never shift (Points :2)
False
The long-run aggregate supply curve can be shifted, when the factors of production change in quantity. Example: number of available workers or labor hours in the long run
2. The Keynesian portion of the short-run aggregate supply (SAS) curve would be relevant during a recessionary situation (Points :2)
True
In recession, the Real GDP reduces but the price remains constant. This is seen in the Keynesian region of Short run aggregate supply curve.
3. The short-run aggregate supply (SAS) curve slopes upward because households spend more as their incomes increase (Points :2)
False
Reason: SAS curve slopes upward because a rise in the price level with no change in costs induces firms to increase production. Again, a rise in the price level, with other things remaining the same, decreases the real value of money and raises the interest rate. Faced with a higher interest rate, people borrow less and spend less.
4. Either a decrease in the nominal money supply by the Federal Reserve, all else held constant, or an increase in the price level, all else held constant, will shift the aggregate demand curve to the left (Points :2)
False
Since money supply is a supply phenomenon so it doesn’t impact the aggregate demand curve. Aggregate demand curve shifts because of changes in Government spending, interest rate, Net exports and Disposable income.
5. Stagflation occurs when the aggregate demand (AD) curve shifts out on the upward sloping portion of the short-run aggregate supply (SAS) curve (Points :2)
False
Stagflation occurs when a negative supply shock (sudden supply decrease) raise prices and shift the aggregate supply curve to the left.
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