4. Shifts of the aggregate supply curve Which of the following would shift the SRAS curve to the left (ignoring any potential effect on LRAS)? O There is a technological improvement that allows firms to reduce their costs of production permanently. O The interest rate decreases, spurring investment spending. O The world price of oil decreases rapidly without warning but is not expected to remain at the new low level permanently. However, in the short run, it is less costly for firms to produce goods and services. O There is an increase in government spending. O The government introduces a set of new regulations that make it more costly for firms to produce and sell goods and services. These regulations are expected to be permanent. The following graph shows the short-run aggregate supply (SRAS) curve and the long-run aggregate supply (LRAS) curve for an economy. Suppose the world price of oil increases rapidly without warning but is not expected to remain at the new high level permanently. However, in the short run, it is more costly for all firms to produce goods and services. Illustrate the short-run effect of this change, before any long-run adjustments have taken place, by shifting one or both of the supply curves ( SRAS and LRAS) on the following graph. If you do not believe there will be any long-term effects, leave the LRAS in its current position.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter24: The Aggregate Demand/aggregate Supply Model

Section: Chapter Questions

Problem 3SCQ: The short run aggregate supply curve was constructed assuming that as the price of outputs...

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Assume that aggregate demand is unaffected by the oil price spike. After the economy has fully adjusted to the oil price spike, the long-run effect is (no change, an increase, a decrease) in aggregate output and (no change, an increase, a decrease) in the price level.

240
LRAS
SRAS
200
SRAS
160
LRAS
120
80
40
AD
12
18
24
REAL GDP (Trillions of dollars)
Assume that aggregate demand is unaffected by the oil price spike. After the economy has fully adjusted to the oil price spike, the long-run effect is
in aggregate output and
in the price level.
PRICE LEVEL

4. Shifts of the aggregate supply curve
Which of the following would shift the SRAS curve to the left (ignoring any potential effect on LRAS)?
There is a technological improvement that allows firms to reduce their costs of production permanently.
The interest rate decreases, spurring investment spending.
The world price of oil decreases rapidly without warning but is not expected to remain at the new low level permanently. However, in the
short run, it is less costly for firms to produce goods and services.
There is an increase in government spending.
The government introduces a set of new regulations that make it more costly for firms to produce and sell goods and services. These
regulations are expected to be permanent.
The following graph shows the short-run aggregate supply (SRAS) curve and the long-run aggregate supply (LRAS) curve for an economy. Suppose
run,
the world price of oil increases rapidly without warning but is not expected to remain at the new high level permanently. However, in the short
it
is more costly for all firms to produce goods and services.
Illustrate the short-run effect of this change, before any long-run adjustments have taken place, by shifting one or both of the supply curves (
SRAS and LRAS) on the following graph. If you do not believe there will be any long-term effects, leave the LRAS in its current position.

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