Q. 14 This year, a nation's long-run e... [FREE SOLUTION]

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Chapter 10: Q. 14 (page 229)

This year, a nation's long-run equilibrium real GDP and price level both increased. Which of the following combinations of factors might simultaneously account for botb occurrences?
a. An isolated earthquake at the beginning of the year destroyed part of the nation's capital stock, and the nation's government significantly reduced its purchases of goods and services.
b. There was a technological improvement at the end of the previous year, and the quantity of money in circulation rose significantly during the year.
c. Labor productivity increased throughout the year, and consumers significantly increased their total planned purchases of goods and services.
d. The capital stock increased somewhat during the year, and the quantity of money in circular. tion declined considerably.

Short Answer

Expert verified

a. Option (a) isn't correct

b. Option (b) is correct

c. Option (c) is correct

d. Option (d) is correct

Step by step solution

Not correct (a)

a) The earthquake destroyed a part of the nation's capital stock. a discount in capital stock and reduction within the purchaseof products and services would shift long-run aggregate supply curve leftward and reduce the equilibrium real GDP.
Therefore, option (a)isn't correct.

Correct (b)

b) Due to the technological improvement the long term aggregate supply curve right and hence increases the important GDP. On the identical time, increase in cash in hand ends up in fall in rate within the economy. As a results of which the investment expenditure increases within the economy and also the aggregate demand curve shifts right. the worth level within the economy rises. Thus, this might be the explanation of accelerating both the 000 GHDP and index number within the economy.
Therefore, option (b) is correct.

Correct (c)

c) Labor productivity increased throughout the year and consumers significantly increased their total planned purchases of products and services. This ends up in a rise in real GDP and also the index number.
Therefore, option (c) is correct.

Correct (d)

d) The capital stock increased and also the quantity of cash in circulation declined. This ends up in the real GDP to stay sameand therefore the supply curve shift rightward.
Therefore,the right answer is option (d).