Chapter 7R, Problem 23MCQ

To determine

The correct option that determines the long-run economic growth using aggregate demand and supply curve.

Answer to Problem 23MCQ

Option c is correct.

Explanation of Solution

Explanation for the correct option:

c.

The aggregate supply curve shifts rightward showing economic growth as the output supplied will be increased. Therefore, option c is correct.

Explanation for incorrect options:

a.

The output supplied will remain unchanged in the long run if prices are decreased from P1 to P2. Therefore, option a is an incorrect answer.

b.

The output supplied will remain unchanged in the long run if prices are increased from P2 to P1. Therefore, option b is incorrect.

d.

If the movement of the LRAS curve is toward the left, then it represents that the output supply is reduced. Therefore, option d is incorrect.

e.

The LRAS is a vertical line that remains unaffected by the aggregate price level in the long-run. Therefore, option e is incorrect.

Economics Concept Introduction

Long-run aggregate supply curve: As per the long-run aggregate supply curve, the aggregate output supplied remains unchanged even if the aggregate price level is increased or decreased.