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What primarily causes the short run supply curve to slope upward?
How does a spike in energy prices affect output in the short run?
What explains the upward slope of the short-run aggregate supply curve?
What does the concept of entrepreneurship ability include?
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Which of the following is NOT considered a component of labor?
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Why is the long run aggregate supply curve vertical?
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Which factor will most likely cause the aggregate demand curve to shift to the left?
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What does physical capital primarily include?
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Economic growth is primarily measured by?
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In the short run, the aggregate supply curve is described as ___ because input prices are __.
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What is the most likely outcome in the long run if the economy is at full employment and experiences a booming market?
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Which condition explains why prices are not fully flexible in the short run?
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Which of the following statements is true regarding the aggregate demand curve?
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Which of the following is NOT an example of human capital investment?
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What effect does a decrease in firms' market power have on aggregate supply?
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In developing countries, what is often a limiting factor for growth?
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Which option is considered an example of infrastructure?
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What characterizes the Long-Run Aggregate Supply (LRAS) curve?
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An increase in taxes primarily shifts the aggregate demand curve to which direction and how does it affect output?
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What is the expected result of increasing the natural rate of unemployment on output and inflation in the long run?
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When the economy operates at its maximum sustainable output, this is referred to as what?
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What effect does a falling aggregate price level have on a country's exports and output demanded?
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Which of these factors is NOT a determinant of short-run aggregate supply?
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If a country has a low capital-to-labor ratio, what is generally true about its labor productivity and wages?
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Which scenario best exemplifies short-run economic growth?
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What could lead to a decrease in the price level and an increase in employment?
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What occurs when business expectations improve?
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Economic growth can be represented graphically as a:
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Which one of the following is a result of higher output levels demanded?
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Which state is an example of increasing the capital-to-labor ratio?
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If a country's currency appreciates, what will happen to its aggregate demand?
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In the scenario where consumers spend more than usual when the economy is at full employment, what will happen to prices in the short run?
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What impact does an increase in capital with a concurrent decrease in labor have on output?
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What is the likely outcome in the long run after an initial increase in consumer spending?
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Which solution is appropriate for addressing simultaneous inflation and unemployment?
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If the economy experiences a shift in aggregate demand due to increased consumer spending, what is the initial effect on output?
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Which of the following is NOT an investment in human capital?
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Study Notes
Capital-to-Labor Ratio
- When the capital-to-labor ratio increases, a construction crew is given more backhoes.
- The capital-to-labor ratio is a measure of the amount of capital per worker in an economy.
GDP and Output Growth
- GDP is the total value of all goods and services produced in an economy.
- GDP is a measure of output.
- GDP growth can be calculated by multiplying the growth rates of output and labor.
- For example, a 10% growth in output and a 10% growth in labor would result in a 100% growth in GDP.
Currency Appreciation and Aggregate Demand/Supply
- If a country's currency appreciates, exports become more expensive, and imports become cheaper.
- This will lead to a decrease in aggregate demand (AD) as exports fall and imports rise.
- Aggregate supply (SRAS) will rise due to cheaper imported goods.
Inflation & Unemployment
- Simultaneous inflation and unemployment can be addressed by implementing policies that shift the short-run aggregate supply curve to the right.
- Shifiting the aggregate demand curve left or right will only address inflation or unemployment on its own.
- Increasing output through shifts in SRAS will lower costs of goods and create more jobs.
Short-Run vs. Long-Run Effects of Increased Spending
- Increased consumer spending in the short run will increase prices and output.
- In the long run, prices will rise further and output will return to its potential level as resource constraints and price adjustments occur.
Human Capital
- Investment in human capital refers to activities that improve the skills, knowledge, and abilities of individuals.
- Examples include apprenticeships, universal education policies, and on-the-job training.
- Acquiring obsolete skills is not an example of investment in human capital.
Aggregate Supply
- A decrease in firms' market power, leading to more competition, can increase aggregate supply.
- This is because firms may lower prices and increase output to stay competitive.
Developing Countries
- Developing countries tend to have limited capital and resources.
Infrastructure
- Infrastructure refers to the fundamental facilities and systems serving a country, city or other area, including public services, transport networks, communication systems, and power supply.
- An example of infrastructure is an elementary school.
- Examples of capital or natural resources, NOT infrastructure, are a computer manufacturing plant, coal mine, or drained swamp.
Long-Run Aggregate Supply (LRAS)
- The LRAS curve is vertical at full employment because the economy’s output is determined by its resources (labor, capital, technology, and natural resources) in the long run.
- The economy operates at its maximum sustainable level of output, regardless of changes in the price level, in the long run.
Taxes and Aggregate Demand
- Increased taxes shift the aggregate demand curve to the left and decrease output demanded.
- Consumers have less disposable income to spend when taxes are higher.
Long-Run Effects of Changing Natural Rate of Unemployment
- Increasing an economy's natural rate of unemployment in the long run will lead to increased inflation.
- This is because the natural rate of unemployment is the lowest sustainable unemployment rate in the long run.
Determinants of Short-Run Aggregate Supply
- Changes in input prices, taxes, business expectations, and inflationary expectations are determinants of short-run aggregate supply.
Capital-to-Labor Ratio and Wages
- A country with a low capital-to-labor ratio tends to have low labor productivity and low wages.
- This is because workers have fewer tools and capital to work with, resulting in lower output per worker.
Short-Run Economic Growth
- A situation associated with short-run economic growth is an increase in employment, which reduces the unemployment rate.
- This is because short-run growth is typically characterized by an increase in economic activity and utilization of existing resources.
Shifting the Aggregate Supply Curve
- A shift to the right of the aggregate supply curve can cause the price level to decrease and employment to increase.
- By producing more goods and services, businesses can lower prices and hire more workers.
Business Expectations & Aggregate Demand
- Improved business expectations will shift the aggregate demand curve to the right.
- This is because businesses will invest more and spend more when they are more optimistic about the future.
Economic Growth and Aggregate Supply
- Economic growth is represented by a shift to the right of the long-run aggregate supply curve.
- This indicates an increase in the economy's potential output.
Short-Run Aggregate Supply Curve
- The short-run aggregate supply curve slopes upward because input prices are not fully flexible in the short run.
- Firms are willing to supply more at higher prices when input costs are relatively fixed.
Price Spikes and Economic Output
- Energy price spikes will decrease output in the short run, but output will return to its long-run equilibrium level in the long run.
Determinants of Short-Run Aggregate Supply
- Many inputs, such as wages and raw materials, are slow to change in the short run.
- This leads to the upward slope of the short-run aggregate supply curve.
Entrepreneurship
- The ability to use physical resources in creative ways to produce goods and services is known as entrepreneurship.
- It combines human productivity with capital production.
Labor
- Labor includes all of the physical and mental talents of people.
- Labor is the time and effort provided by individuals in the production of goods and services.
Determinants of Aggregate Supply
- Productivity is a determinant of aggregate supply.
- Productivity refers to the efficiency with which inputs are converted into outputs.
Falling Price Level and Output Demanded
- A falling aggregate price level will increase demand for a country's exports, which will increase output demanded.
- This is because lower prices make a country's goods and services more attractive to foreign buyers.
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Description
Test your understanding of key economic concepts including the capital-to-labor ratio, GDP growth, currency appreciation, and the interplay between inflation and unemployment. This quiz will challenge your knowledge of how these factors influence the economy and aggregate demand/supply.
