Question

33.Which of the following variables is fixed in the aggregate expenditure​ model?

A. price level

B. output

C. consumption

D. investment

E. real GDP

35.

1 The Middle East cuts supplies of oil to the United States.

2 The New York Yankees win the World Series.

3 U.S. labor unions negotiate wage hikes that affect all workers.

4 A huge scientific breakthrough doubles the output that an additional hour of U.S. labor can produce.

5 Migration to the United States increases the​ working-age population.

Which of the events in the table increase potential GDP and which decrease potential​ GDP?

An increase in potential GDP results from​ ______. A decrease in potential GDP results from​ ______.

1. events 1 and​ 3; events 4 and 5

2. events 3 and​ 4; event 5

3. events 4 and​ 5; events 1 and 3

4. event​ 2; event 1

5. event​ 4; event 5

 

Answer 1

(33) (A)

Price level is considered unchanged in aggregate expenditure model.

(34) Option (3)

A technological breakthrough increases productivity, which increases potential GDP and shifts LRAS curve rightward. Increase in working-age population increases labor force, which increases potential GDP and shifts LRAS curve rightward.

Lower supply of oil decreases inputs available for production, which decreases potential GDP and shifts LRAS curve leftward. A wage hike increases production cost for firms, which decreases potential GDP and shifts LRAS curve leftward.