Aggregate supply (AS): Practice Questions

In the short run, why does the short-run aggregate supply (SRAS) curve have an upward slope?

Which of the following events would cause a rightward shift in the short-run aggregate supply (SRAS) curve but would NOT shift the long-run aggregate supply (LRAS) curve?

Which of the following events would cause the Short-Run Aggregate Supply (SRAS) curve to shift rightward while leaving the Long-Run Aggregate Supply (LRAS) curve unchanged?

Suppose a country experiences a significant brain drain as many highly skilled professionals emigrate. At the same time, the government reduces the sales tax on all consumer goods. What are the most likely long-run effects on the LRAS curve and short-run effects on the AD curve, respectively?

In the study of aggregate supply, which of the following would most likely cause a movement along the short-run aggregate supply (SRAS) curve rather than a shift of the curve?

Suppose there is a significant technological breakthrough that drastically improves the production efficiency across all industries in an economy. Explain the effect of this change on the Long-Run Aggregate Supply (LRAS) curve.

An economy is initially operating at its long-run equilibrium. Suppose the government implements significant deregulation policies that reduce administrative burdens and foster innovation, boosting long-term productive capacity. Simultaneously, the economy faces a global supply chain disruption that raises average production costs for all firms.

Using the Aggregate Demand-Aggregate Supply (AD-AS) model, analyze the short-run effects on the equilibrium aggregate output and price level, and then explain the subsequent adjustment process to a new long-run equilibrium.

Suppose an economy simultaneously experiences two major events: a substantial increase in global oil prices and a significant technological breakthrough in automation that enhances productivity across multiple sectors. Analyze the immediate impact of these two events on the short-run aggregate supply (SRAS) curve and the long-run aggregate supply (LRAS) curve. What would be the likely net effect on the equilibrium price level and real output in the short run, assuming the technological breakthrough's impact on productivity is initially greater than the negative effect of increased oil prices?

Compare the effects of the following two events on the aggregate supply of an economy:
(1) The government provides a one-off electricity subsidy to all local manufacturers. (2 points)
(2) There is a significant improvement in the quality of the labor force due to long-term education reform. (2 points)

In your answer, specify which curve(s) (SRAS or LRAS) will be affected and the direction of the change. (1 point)

The Short-run Aggregate Supply (SRAS) curve is usually depicted as upward-sloping, whereas the Long-run Aggregate Supply (LRAS) curve is vertical.

(a) Explain the concept of "imperfect adjustment of input and output prices" and how it contributes to the upward-sloping nature of the SRAS curve. (3 points)
(b) Explain why the LRAS curve is vertical at the full-employment level of output, assuming factor prices are fully flexible. (3 points)