CFA Practice Question

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 the resource prices will ______ and short-run aggregate supply will ______.
A. decrease, increase.
B. increase, decrease.
C. decrease, decrease.
Explanation: The economy is in a recession since its short-run equilibrium is less than the 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.

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