Pregunta
Question 30
Which is most likely to cause a temporary spurt in the growth of GDP that cannot be maintained in the long run?
(1) An unanticipated increase in aggregate demand.
(2) An increase in wage rates
(3) An increase in long run aggregate supply (LRAS).
(4) An anticipated increase in aggregate demand.
Which is most likely to cause a temporary spurt in the growth of GDP that cannot be maintained in the long run?
(1) An unanticipated increase in aggregate demand.
(2) An increase in wage rates
(3) An increase in long run aggregate supply (LRAS).
(4) An anticipated increase in aggregate demand.
Ask by Romero Vega. in Cayman Islands
Mar 31,2025
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An unanticipated increase in aggregate demand is most likely to cause a temporary boost in GDP that can’t be sustained in the long run.
Solución
We start by recalling that in the short run, an unanticipated increase in aggregate demand can push the economy’s output temporarily above its potential. This is because firms produce more in response to higher demand, even though prices may be sticky initially. The temporary increase occurs as the economy moves along its short‐run aggregate supply (SRAS) curve.
In contrast, an anticipated increase in aggregate demand is typically factored into prices and wages, so the effect on real GDP is smaller. An increase in wage rates generally increases production costs and can slow down output, while an increase in long-run aggregate supply (LRAS) represents a shift in the economy’s potential output, leading to sustained long-run growth rather than a temporary spurt.
Thus, the most likely factor to cause a temporary spurt in GDP that cannot be maintained is
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Simplifique esta solución Mind Expander
An unanticipated increase in aggregate demand can act like a shot of espresso for the economy, giving it a temporary boost. This sudden surge might lead to more production, higher employment, and increased spending, but once the initial excitement fades, it often leaves the economy facing inflationary pressures and cannot support these high levels of growth permanently.
On the flip side, long-run aggregate supply (LRAS) represents the economy’s potential output based on resources and technology. While increases in LRAS can sustain growth through enhancements in productivity and capacity, an unexpected demand spike might create imbalances that, once corrected, can lead to slower growth as the economy adjusts back to its potential.
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