What is a defining characteristic of the economy in the long run, as described in the AD-AS model?
Explanation
In the long run, all prices are assumed to be fully flexible. This means that wages and other input prices will adjust to any changes in the overall price level, removing any incentive for firms to alter their output levels. Consequently, in the long run, the economy's output is determined by its productive capacity (full-employment output), and the aggregate supply curve is vertical.
Other questions
Which of the following correctly identifies the three effects that explain why the aggregate demand curve slopes downward?
What is the primary reason for the upward slope of the short-run aggregate supply curve?
Why is the long-run aggregate supply curve vertical at the full-employment level of output?
How are the equilibrium price level and the equilibrium level of real GDP determined in the aggregate demand-aggregate supply model?
According to the AD-AS model, what is the outcome of an increase in aggregate demand that moves the economy beyond its full-employment level of output?
What are the dual outcomes of a leftward shift of the aggregate supply curve?
If an economy's MPC is 0.75, what is the value of the simple multiplier, and how would this affect a 5 billion dollar initial increase in investment spending?
What is the ratchet effect in the context of the AD-AS model?
Which of the following is NOT listed as a reason for the downward inflexibility of prices and wages?
Which characteristic best describes the immediate-short-run aggregate supply curve?
What is the effect of an increase in productivity on the aggregate supply (AS) curve and per-unit production costs?
How does an increase in business taxes, such as sales or payroll taxes, typically affect the aggregate supply (AS) curve?
Which factor would most likely cause a rightward shift in the aggregate demand curve?
In the AD-AS model, what happens if the amount of real output demanded is greater than the amount of real output supplied at a particular price level?
The real-balances effect contributes to the downward slope of the aggregate demand curve because a higher price level:
A shift of the aggregate demand curve from AD1 to AD2 is referred to as an increase in aggregate demand. This shift is composed of what two components?
The short-run aggregate supply curve is relatively flat at output levels below the full-employment output because:
What is the economic outcome of a decrease in aggregate demand when the price level is inflexible downward?
How did significant increases in productivity in the late 1990s affect the U.S. economy, according to the AD-AS model?
Which of the following is considered a determinant of aggregate supply?
In the single-firm economy example of Mega Buzzer, nominal profit rises from 20 dollars to 120 dollars when the price level doubles. What is the new real profit if the new price index is 200?
The interest-rate effect suggests that a higher price level will increase the demand for money, which in turn will:
If the price level increases, the foreign purchases effect will cause:
How does an increase in national income abroad affect the U.S. aggregate demand curve?
Which combination of events would most likely lead to demand-pull inflation?
In the AD-AS model, cost-push inflation is depicted as a:
If a government increases spending on highways by 5 billion dollars and the MPC is 0.75, the aggregate demand curve will shift to the right by:
A decline in investment spending due to pessimistic expectations about future business conditions would cause the aggregate demand curve to:
A recessionary GDP gap is the amount by which:
How do the three time horizons for aggregate supply differ?
An increase in per-unit production costs for reasons other than a change in real output will cause:
A decrease in household borrowing for consumption purposes would shift the:
If an upsloping aggregate supply curve exists, the multiplier effect from an increase in aggregate demand is weakened because:
What does the text identify as the immediate cause of the large majority of cyclical changes in the levels of real output and employment?
An inflationary GDP gap occurs when:
Which of these is a primary reason that a decrease in aggregate demand in the U.S. results in a recession rather than deflation?
What is the primary difference between the short-run aggregate supply curve and the immediate-short-run aggregate supply curve?
If a rise in excess capacity occurs in the economy, how will this affect investment and the aggregate demand curve?
The 2001 recession in the United States was largely the result of:
According to the text, a business subsidy, such as the one for blending ethanol with gasoline, affects the AD-AS model by:
If a change in consumer spending shifts the aggregate demand curve from AD1 to AD2, what is the role of the multiplier?
Which of the following scenarios would lead to a decrease in aggregate demand?
What is disinflation?
The short-run aggregate supply curve becomes steeper at output levels beyond the full-employment output because:
Which of the following represents a decrease in aggregate supply?
If a major trading partner of the United States experiences a severe recession, how will this affect the U.S. economy?
According to the AD-AS model, if the price level were flexible downward, a decrease in aggregate demand from AD1 to AD2 would result in:
In the appendix, the aggregate demand (AD) curve is derived from the aggregate expenditures (AE) model by observing that:
In the appendix, how is an increase in investment (a determinant of aggregate demand) at a constant price level shown in the two-panel diagram linking the AE model and the AD-AS model?