The Long-Run Aggregate Supply Curve

Which of the following factors primarily determines a country's potential economic growth rate?

• The rate of inflation.

• The level of consumer spending.

• Human capital, physical capital, ideas, and good institutions.

• Short-term government spending policies.

What does the Long Run Aggregate Supply (LRAS) curve represent in an economy?

• The relationship between inflation and short-term economic output.

• The economy's potential growth rate, unaffected by inflation in the long run.

• The total demand for goods and services at various inflation rates.

• The short-term fluctuations in economic activity.

What are "real shocks" in an economic context?

• Sudden changes in consumer preferences for goods and services.

• Unexpected events that directly affect the factors of production and output.

• Fluctuations in the stock market due to investor sentiment.

• Government decisions to increase or decrease interest rates.

How does a negative real shock, such as a natural disaster, typically affect an economy's long-run aggregate supply?

• It shifts the long-run aggregate supply curve to the right, increasing growth and decreasing inflation.

• It shifts the long-run aggregate supply curve to the left, lowering growth and increasing inflation.

• It causes a movement along the long-run aggregate supply curve, without shifting it.

• It primarily affects aggregate demand, leaving aggregate supply unchanged.