The Figure Below Shows the Short-Run Aggregate Demand and Supply

question 82

Multiple Choice

The figure below shows the short-run aggregate demand and supply curves of an economy. If the economy is currently producing at Y₂, long-run equilibrium will most likely be established by a(n) :

• A) increase in short-run aggregate supply.
• B) decrease in short-run aggregate supply.
• C) decrease in potential output.
• D) increase in potential output.
• E) rightward shift of the aggregate demand curve.

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Definitions:

AP

Advance Placement; a program in the United States and Canada offering college-level curriculum and examinations to high school students.

Economies of Scale

The cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.

Diseconomies of Scale

The situation where a company or business grows so large that the costs per unit increase, leading to inefficiency.

Constant Returns to Scale

A condition in production where increasing the inputs results in a proportional increase in output.