Economics 11 Q2 - AS

The short-run aggregate supply (SRAS) curve slopes upward because:

• Wages and input prices are flexible in the short run

• Firms produce more as the price level rises due to fixed costs in the short run

• Technology improves in the short run

• Firms have unlimited capacity in the short run

Answer explanation

Explanation: In the short run, wages and some input costs are fixed, so firms can increase output in response to rising prices, resulting in an upward-sloping SRAS curve.

Which of the following could cause a shift of the SRAS curve to the right?

• An increase in raw material prices

• An improvement in technology

• An increase in wages

• Higher business taxes

Answer explanation

Explanation: Technological advancements increase productivity and reduce production costs, shifting the SRAS curve to the right.

Which of the following is a determinant of short-run aggregate supply?

• Consumer confidence

• Productivity of labor

• Interest rates

• Consumer spending

Answer explanation

Explanation: Productivity improvements increase output for the same input, which is a key factor affecting the position of the SRAS curve.

What is the impact of a reduction in labor productivity on the SRAS curve?

• A rightward shift

• A leftward shift

• No impact on SRAS

• A movement along the SRAS curve

Answer explanation

Explanation: Lower labor productivity increases costs and reduces the amount firms are willing to supply at any given price, shifting the SRAS curve to the left.

In the long run, the new classical LRAS curve is:

• Upward sloping

• Vertical

• Horizontal

• Shaped like the SRAS curve

Answer explanation

Explanation: In the new classical model, the LRAS is vertical because, in the long run, the economy operates at full employment, and output is determined by the economy’s productive capacity, not the price level.

Which of the following would cause a rightward shift in the LRAS curve?

• A decrease in wages

• An increase in productivity

• An increase in taxes

• An increase in the price level

Answer explanation

Explanation: Increases in productivity (through technological advancements, better education, or more capital) raise the economy’s potential output, shifting the LRAS curve to the right.

Keynesian economists believe that the AS curve:

• Is always vertical

• Slopes upwards and becomes perfectly elastic at low levels of output

• Is perfectly inelastic in the long run

• Has no relation to the level of unemployment

Answer explanation

Explanation: In the Keynesian model, the AS curve is upward-sloping but flat at low levels of output, reflecting spare capacity and unemployed resources.

What causes a movement along the SRAS curve?

• A change in the price level

• A change in productivity

• A change in technology

• A change in wages

Answer explanation

Explanation: A movement along the SRAS curve happens when there is a change in the price level, assuming other factors remain constant.

Which of the following would cause the LRAS curve to shift to the right?

• A decrease in capital stock

• A decrease in labor force participation

• An increase in infrastructure investment

• A decrease in investment

Answer explanation

Explanation: Investments in infrastructure improve the efficiency of production, expanding the economy’s productive capacity and shifting the LRAS curve to the right.

In the Keynesian model, an increase in aggregate demand will lead to:

• A rise in the price level only if the economy is near full employment

• A rightward shift in the SRAS curve

• A fall in the price level if the economy is below full employment

• A leftward shift in the LRAS curve

Answer explanation

Explanation: In the Keynesian model, price levels only start to rise when the economy reaches full employment. Before that point, increases in AD primarily increase output, not prices.