CFA Practice Question

There are 539 practice questions for this study session.

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?
You need to log in first to add your comment.