Question 1

Which of the following would cause a shift in the Long Run Aggregate Supply (LRAS) curve to the right?

Accepted Answer

An improvement in technology

Question 2

In the short run, why might wages be considered 'sticky'?

Accepted Answer

Wages are often determined by contracts and do not respond quickly to changes in economic activity

Question 3

Suppose the government invests heavily in education, increasing the skill level of the workforce. What is the most likely effect on the LRAS curve?

Accepted Answer

Shift of the LRAS curve to the right

Question 4

Which equation best represents the concept of potential output in the long run?

Accepted Answer

$Y^* = f(L, K, N, T)$ where $Y^*$ is potential GDP, $L$ is labor, $K$ is capital, $N$ is natural resources, and $T$ is technology.

Question 5

A sudden increase in oil prices is best described as:

Accepted Answer

A supply shock that shifts the SRAS curve to the left

Question 6

If firms and workers expect higher prices in the future, what is the likely effect on the short-run aggregate supply (SRAS) curve?

Accepted Answer

SRAS shifts to the left

Question 7

Which of the following is NOT a determinant that shifts the LRAS curve?

Accepted Answer

Change in the price level

Question 8

Consider the equation for short-run equilibrium: $AD = SRAS$. What does the intersection of these curves determine?

Accepted Answer

The equilibrium price level and output in the short run

Question 9

If the price level increases but all other variables remain unchanged, what happens to the SRAS curve?

Accepted Answer

There is a movement up along the SRAS curve

Question 10

Which scenario would most likely cause a leftward shift in the SRAS curve?

Accepted Answer

An increase in expected future prices by workers and firms

Question 11

Why does a change in the price level NOT affect the LRAS curve?

Accepted Answer

Because LRAS is vertical and only shifts with changes in resources or technology

Question 12

Suppose a country discovers a new source of natural resources. What is the likely effect on aggregate supply?

Accepted Answer

SRAS shifts right, LRAS shifts right

Question 13

Which of the following best describes 'sticky prices'?

Accepted Answer

Prices that are slow to adjust to their equilibrium level

Question 14

If the labor force increases due to immigration, what is the expected effect on the SRAS and LRAS curves?

Accepted Answer

Both SRAS and LRAS shift to the right

Question 15

A firm realizes it has underestimated the price level and adjusts its wages and prices upward. What is the likely effect on the SRAS curve?

Accepted Answer

SRAS shifts to the left

Question 16

Which of the following is a real-world example of a supply shock?

Accepted Answer

A sudden increase in oil prices due to geopolitical conflict

Question 17

If productivity increases due to technological innovation, what happens to the SRAS curve?

Accepted Answer

SRAS shifts to the right

Question 18

Which of the following best describes the equilibrium point in the short run?

Accepted Answer

The intersection of SRAS and AD

Question 19

If nominal wages rise, what is the likely effect on the SRAS curve?

Accepted Answer

SRAS shifts to the left

Question 20

Which of the following is true about the relationship between price level and real GDP in the long run?

Accepted Answer

Changes in the price level do not affect the level of real GDP in the long run

Aggregate Supply: Long-Run and Short-Run Analysis

Study Guide - Practice Questions