(12) Show and explain why a ch

12).

SRAS curve shows the overallproduction of the economy as whole that can be produce at thedifferent price level. So, there is a direct relationship between“P” and the overall quantity supplied by the economy as whole. Now,the three factor that leads to outside shift of the SRAS curve isgiven by, “technological improvement”, “increase in the inputsupply” and “decrease in the input price”.

So, as the technology improve implied the same level of outputcan be produced with much lower cost, => the SRAS will shiftright side at the given level of price level.

Similarly, if there will be a sudden increase in the inputsupply, => the price of the input decreases, => productioncost will also decreases, => the SRAS will shift right side atthe given level of price level.

Now, the price of input can also decreases due to some otherreason. So, as the price of the input decreases, => productioncost will also decreases, => the SRAS will shift right side atthe given level of price level.

13).

If the input availability decreases, => the input price willincreases, => production cost will also increases, => theSRAS will shift left side given the price level.

Similarly if there is a negative supply shock that increase thecost of production or input price increases due to some otherreasons, => the increase in the cost of production, => therewill be a left side shift in the SRAS curve.

14).

In the LR the expected price level can’t be different from theactual price level, => in the LR the expected price is same asactual price and the actual output is same as natural rate ofoutput, => the LRAS is vertical.

Now, if there is a “technologicalimprovement” or “sudden increase in the input supply” leads toincrease in the potential output, => the LRAS will shift rightside. Now as the price of the input decrees due to some otherreason when the input supply remain same, => in the SR outputwill increase but the LR output will not same, => the LRAS willnot shift here.

Similarly, if the input supply decreases or there will be a leftside movement of the LRAS but as the negative supply shock theprice will increases the LRAS will not shift.