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According to neoclassical economists, which of the following statements is correct? Multiple Choice The AD curve...

According to neoclassical economists, which of the following statements is correct? Multiple Choice The AD curve is horizontal but the AS is vertical. The AD curve is vertical but the AS is horizontal. The AS is horizontal. The AS is vertical.

Which of the following is true of a rightward shift in the LAS curve?

Multiple Choice

  • It will raise the level of prices.

  • The AS will shift right.

  • It would result if the aggregate demand curve shifted to the right.

  • The AS will not shift.

  • It could not be caused by an improvement in technology.


  • Villareal’s nominal GDP increased from $182 billion to $252 billion last year. During the year, its economy experienced inflation, with its price index increasing from 104 to 112, while the number of persons employed increased from 25 million to 27 million.

    By what percentage did its labor productivity increase during the year?

    Labor productivity increased by  %. Round your answer to 2 decimal places.

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Homework Answers

Answer #1

1. Option D The AS is vertical

In the neoclassical model, the aggregate supply curve is drawn as a vertical line at the level of potential GDP. If AS is vertical, then it determines the level of real output, no matter where the aggregate demand curve is drawn.

2.Option B The AS will shift right.

One of important factor that causes the aggregate supply curve to shift is economic growth. Positive economic growth results from an increase in productive resources, such as labor and capital. With more resources, it is possible to produce more final goods and services, and hence, the natural level of real GDP increases. Positive economic growth is therefore represented by a shift to the right of the LAS curve.

3.Nominal GDP in current year = 252 Billion

Inflation Rate = 112

Real GDP current year

Inflation Rate = Nominal GDP / Real GDP * 100

112 = 252 / Real GDP *100

Real GDP = 225 Billion

For Previous Year

Nominal GDP = 182 Billion

Inflation Rate = 104

Real GDP = 175 Billion

Labor Productivity = Real GDP / Aggregate Labor Hours

Converting Millions of No. of employees into Billions

Labor Productivity Current Year = 225 / 0.027 = 8333

Labor Productivity Previous Year = 175 / 0.025 = 7000

Increase in Labor Productivity = [(8333 - 7000) / 7000] * 100

= 19.04%

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