Exhibit 10.3

-Refer to Exhibit 10.3, which shows an aggregate demand-aggregate supply model. The shift from AS to AS' is likely to occur when _____
A) the actual price level is higher than expected.
B) the actual price level is lower than expected.
C) the unemployment rate is lower than the natural rate.
D) the actual output is more than the potential output.
E) the aggregate demand curve intersects the short-run aggregate supply curve at the potential output.

Question

Exhibit 10.3
 
-Refer to Exhibit 10.3, which shows an aggregate demand-aggregate supply model. The shift from AS to AS' is likely to occur when _____
A) the actual price level is higher than expected. 
B) the actual price level is lower than expected. 
C) the unemployment rate is lower than the natural rate. 
D) the actual output is more than the potential output. 
E) the aggregate demand curve intersects the short-run aggregate supply curve at the potential output.

Quizplus · Accepted Answer

A shift from AS to AS' implies an increase in short-run aggregate supply. This can occur when the actual price level is lower than expected, leading to lower input costs for firms and an increase in their profits. As a result, they are incentivized to produce more output and move along the aggregate supply curve.

Exhibit 10.3 -Refer to Exhibit 10.3, Which Shows an Aggregate Demand-Aggregate Supply