CFA Practice Question

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CFA Practice Question

When the price level rises but the money wage rate and other resource prices remain the same, then the quantity of real GDP supplied ______ and there is a ______ the short-run aggregate supply curve.

A. decreases; a movement along
B. increases; a movement along
C. increases; a rightward shift of
Correct Answer: B

User Contributed Comments 7

User Comment
awellman AS(Short and Long) is a function of Price (Level) and Q (of GDP). In the LAS is independent of the price level (horizontal curve). However, in the short run a change in the price level causes a movement along the SAS curve. Thus an increase in price by definition means that we are moving along the SAS curve. Given that the curve is upward sloping and the movement is a rise, we know that it an increase.
pierreE14 CAREFULL !!

only SAS is function of P level and Q of real GPD

LAS is independant of price level and is VERTICAL
(symply because potential GPD is independant of price level)
krisscfa If Price Level increase(decrease) the qty of real GDP supplied increases(decrease) moving the SRAS upward...Here the KEY is Increase in Price.

If price increases there is only MOVEMENT in supply curve not SHIFT..
MattyBo Careful distinction to krisscfa's comment.

Price level change is a movement along the SAS curve. Money wage rate change moves the SAS curve. See good example in Figure 12 on page 329 in text.
steved333 MattyBo, you're right, but the query stated that price level was the only change; the money wage rate remained constant.
cfaajay graph for SRAS is based on two variables (Price,GDP)
GDP - amount of goods produced by using resource and the resources are labor ,capital ,land and Technology.
as it clearly says that only price has changes and none of factors of production has changed ,so the movement will be along the SRAS curve rather then shift in the SRAS curve
gill15 Shifts of SAS curve due to nominal wages, change in INPUT pricea(Not Price Level), expectations of future prices, exchange rate and business taxes

cmon the notes.
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