Question

if an AD/AS model equilibrium occurs relatively far from where the AS curve becomes steep, which of the following is/ are true?

the economy is operating close to potential GDP

unemployment is at its natural rate

unemployment is relatively high

there is pressure on the price level

the price level is stable

the economy is operating below potential GDP

Assuming AD is unchanged, shifts in SRAS to the right lead to a(n) _____ in real GDP and _____ pressure on the price level.

Group of answer choices

decrease; upward

increase; downward

decrease; downward

An increase in the cost of imported goods that are used as inputs for other products (think President Trump’s trade tariffs) would shift SRAS to the:

Group of answer choices

left.

right.

have no affect on SRAS.

insufficient information to determine.

Answer 1

1) If an AS/AD model equilibrium occurs relative leaf or from where the AS curve becomes steep, it means that the economy is very below the full employment level of GDP or potential GDP. This means that the unemployment is relatively high in economy.

Hence, third option is correct.

2) if the economy is operating below potential GDP, keeping AD unchanged, shift in SRAS to the right would lead to an Increase in the real GDP and downward pressure on the Price Level.

Hence, second option is correct. i.e, Increase; downward.

3) increase in the cost of input as a result of imposition of tariff leads the the SRAS curve shift to the left.

Hence, an increase in the cost of imported goods that are used as inputs for other products would shift SRAS to the left.

Hence, first option is correct i.e, left.