Chapter 40, Problem 4MCQ

To determine

The correct option for the depiction of long-run economic growth using aggregate demand and aggregate supply curve.

Answer to Problem 4MCQ

Option c is correct.

Explanation of Solution

Explanation for the correct option:

c.

  

In the long-run, economic growth can be shown through the rightward shift of the long-run aggregate supply curve where the potential output level is increased. It is shown in the above graph. Therefore, option c is correct.

Explanation for incorrect options:

a.

Leftward shift in aggregate demand shows a reduction in consumer demand for the product. Therefore, option a is incorrect.

b.

Rightward shift depicts the relationship between the growth in aggregate demand due to the change in the aggregate price level. Therefore, option b is the incorrect answer.

d.

Rightward shift in the short-run aggregate supply curve can depict only a short-term growth rate. Therefore, option d is incorrect.

e.

Leftward shift in the aggregate supply curve represents the reduction in the real GDP level. Therefore, option e is incorrect.

Economics Concept Introduction

Real GDP: Real Gross Domestic Product refers to the measure that determines the value of goods and services which are produced in the country within a specific time frame after adjusting for inflation.