Discuss the three ranges of the aggregate supply (AS) curve. What could cause the AS curve to shift to the left? What impact would a leftward shift of the AS curve have on the economy?
The Keynesian range is the horizontal range of the AS curve. The intermediate range is the upward sloping portion. The Classical range is the vertical potion of the AS curve. Changes in aggregate demand will have differing effects on real GDP and the price level depending on which range we are in along the AS curve. Anything which increases costs of production will shift the AS curve leftward. A leftward shift of the AS curve would create stagflation.
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Which of the following statements is FALSE?
A) Fiscal policy is the attempt to influence the economy using taxes, transfer payments, and government expenditures. B) Government expenditure affects aggregate demand directly because government expenditure is a component of aggregate demand. C) Taxes and transfer payments affect aggregate demand by changing disposable income. D) An increase in disposable income leads to a decrease in aggregate demand.
An increase in the price of metal raises the cost of manufacturing dishwashers. As a result, the market changes to a new equilibrium because of
a. a surplus of dishwashers. b. an increase in the demand for dishwashers. c. a leftward shift in the demand curve for dishwashers. d. a leftward shift in the supply curve for dishwashers.
The law of demand states that there is a negative relationship between price and quantity demanded, ceteris paribus.
Answer the following statement true (T) or false (F)
In the real world we don't observe countries completely specializing in the production of goods for which they have a comparative advantage. All of the following are reasons for this except
A) not all goods and services are traded internationally. B) some countries have more resources than other countries. C) tastes for many traded goods are different in many countries because of globalization. D) production of most goods involves increasing opportunity costs.