CFA Practice Question

CFA Practice Question

Which of the following will increase the aggregate supply in the long-run?
A. an world wide increase in the price of oil.
B. an increase in the country's rate of capital formation.
C. a increase in the expected rate of inflation.
Explanation: Increased capital investment expands the supply of physical capital and allows more production to occur permanently. It increases the supply of resources and improves the efficiency of resourse use too. This, in turn, will increase the economy's long run aggregate supply.

User Contributed Comments 9

User Comment
danlan Increase in rate of capital formation means increase of capital investment.
Birdy101 thanks, danlan
Kuki cant it be C? inflation increases...prices increase...supply increases? correct me if i'm wrong!
AkashKB Price increase, Demand decrease or stays the same depending on its elasticity, supply either decreases or stays the same. I think
Dinosaur I think C would increase aggregate demand but not real aggregrate demand.
Marleni short run vs. long run
jsubhen A could technically be correct.

Increase in price of oil, lead to more companies expending cost looking for oil reserves/use more sophisticated methods to drill oil which then increases aggregate supply in the long run.
hoyleng ya. i choose A too. becuz i dun understand what is capital formation.
GBolt93 jsubhen, that requires way too many assumptions. Just use what they gave you, i.e. an increase in costs of production which would certainly decrease aggregate supply.
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