3.7: LR Self Adjustment

What does the intersection of the aggregate demand curve and the short-run aggregate supply curve specify?

• The total supply of goods in the economy

• An equilibrium price level and an equilibrium level of output

• Government spending levels

• The unemployment rate in the economy

What does full employment output imply?

• A situation where there is no unemployment

• A level of employment that is sustainable

• An economy's output at maximum capacity

• That everyone in the economy is employed

What happens in the short-run if the aggregate demand curve shifts up?

• Unemployment will increase

• Prices and output will increase

• Output will decrease

• Prices will decrease

What is the result of an increase in aggregate demand in the long-run?

• An adjustment back to full employment output

• A decrease in the price level

• A decrease in employment

• A permanent increase in output

What triggers the long-run self-adjustment mechanism?

• A decrease in aggregate demand

• A decrease in government spending

• A shift in the short-run aggregate supply curve

• An increase in labor prices

What is the effect of a shift in the short-run aggregate supply curve due to increased labor prices?

• Decrease in overall demand

• Permanent increase in unemployment

• Increase in full employment output

• Adjustment back to sustainable output levels

What does the long-run self-adjustment mechanism suggest about government intervention?

• It should focus on reducing supply

• It is always necessary

• It should increase taxes

• It might not be necessary

What happens to the equilibrium price level as a result of the long-run self-adjustment mechanism?

• It remains constant

• It decreases

• It increases

• It becomes zero

What is the role of optimistic economic news in the context of aggregate demand?

• It shifts aggregate demand up

• It decreases aggregate demand

• It reduces the price level

• It has no effect

What is the outcome of increased wages on the short-run aggregate supply curve?

• It becomes flat

• It shifts downwards

• It remains unchanged

• It shifts upwards