If aggregate demand increases, the likely effect in the short run is__________.
higher product prices and increased output; In the short run, aggregate supply is upward-sloping, so the equilibrium price level and output level increases when aggregate demand shifts to the right.
True or false.
Economists agree that the short-run aggregate supply curve is vertical.
false; Most economists believe that the short-run aggregate supply curve is upward-sloping and the long-run aggregate supply is vertical at full-employment output.
Which of the following is not one of the reasons why the aggregate supply curve slopes upward in the short run?
Quick responses to information; The aggregate supply curve’s upward slope results from market imperfections, such as delayed responses to information, not quick responses.
In the long run, aggregate supply is__________.
vertical, because input prices are flexible in the long run; Firms might earn higher profit per unit in the short run, because product prices are rising while input prices remain the same. However, in the long run, input prices will rise as well, and per unit profit returns to normal.
In the short run, an increase in aggregate demand__________.
creates an opportunity for firms to increase profit if they sell more units of output; Assuming the increases in input prices are small compared to increase in price due to AD, there will be a larger profit margin on each unit sold. A firm that sells more units of output will earn more profit on each unit as well as more profit in total.
If the economy is in equilibrium at a point on the long-run aggregate supply,__________.
unemployment is equal to the natural rate; The long-run aggregate supply curve is vertical at the real output level corresponding to the natural rate of unemployment.