- CFA Exams
- CFA Level I Exam
- Study Session 4. Economics (1)
- Reading 14. Aggregate Output, Prices, and Economic Growth
- Subject 6. Equilibrium GDP and Prices
CFA Practice Question
If the intersection of aggregate demand and short-run aggregate supply is to the left of long-run aggregate supply and there is no shift in aggregate demand, in the long run resource prices will ______ and short-run aggregate supply will ______.
A. decrease; increase
B. increase; increase
C. decrease; decrease
Explanation: The economy is in a recession, since its short-run equilibrium is less than its long-run capacity. This will lead to falling resource prices, and thus an outward shift of the short-run aggregate supply curve until full employment output is restored at the intersection of the aggregate demand curve and the long-run aggregate supply curve.
User Contributed Comments 4
| User | Comment |
|---|---|
| adrianwww | draw chart and follow till d=long r s |
| mftrader | Why does short-run aggregate supply increase? |
| ColonelCFA | Because resource prices drop so firms can produce more |
| linzlinked | I believe the second part of this question is asked wrong. and long-run aggregate supply will___? Increase. Comments? |