As real GDP increases the equilibrium point of aggregate demand (AD) and short run aggregate (SRAS) supply move how, with regards to long run aggregate (LRAGS)supply?
A)The LRAGS moves to the right, and the AD and SRAS move up.
B)The LRAGS moves to the right, and the AD and SRAS move down.
C)The LRAGS moves to the left, and the AD and SRAS move up.
D)The LRAGS moves to the left, and the AD and SRAS move down.

Question

Quizplus · Accepted Answer

As real GDP increases, the AD curve shifts to the right, which causes an increase in both price level and quantity of output in the short run. However, if the increase in GDP is due to an increase in factors of production or improvements in technology, then the SRAS curve will also shift to the right, causing a decrease in the price level and an increase in the quantity of output. In the long run, the LRAS curve will also shift to the right as the factors of production increase, allowing the economy to produce more goods and services at lower prices. Therefore, in this scenario, the LRAS curve shifts to the right, while both AD and SRAS move up.

As Real GDP Increases the Equilibrium Point of Aggregate Demand