Question

In the late 1990s, the United States experienced very high GDP growth, record low unemployment rates, and virtually nonexistent inflation. Based on the conclusions of the AD/AS model, this combination of good economic results can be explained by a __________.

a. rightward shift of the aggregate demand.
b. leftward shift of the aggregate demand.
c. rightward shift of the short- or long-run aggregate supply.
d. leftward shift of the short- or long-run aggregate supply.

Answer 1

Based on the AD/AS model, the economic conditions of the late 1990s in the U.S. suggest a rightward shift of the short- or long-run aggregate supply, leading to increased GDP, lower unemployment, and stable prices.

Step-by-step explanation:

The combination of high GDP growth, record low unemployment rates, and virtually nonexistent inflation in the late 1990s in the United States can be explained by the Aggregate Demand/Supply (AD/AS) model. According to this model, such a combination is likely the result of a rightward shift of the short- or long-run aggregate supply (AS). This shift represents increases in productivity, which can be influenced by factors such as investment in physical and human capital, technology, and the ability of an economy to take advantage of 'catch-up' growth. A rightward shift in the short- or long-run AS curve would lead to an increase in potential GDP, lower unemployment, and stable prices.

Answer 2

d. leftward shift of the short- or long-run aggregate supply.

Step-by-step explanation:

A smaller labor force would usually lead to a reflection in the leftward shift in both short run aggregate supply and potential GDP ( gross domestic product) of the economy. What this means is it would lead to a lower level of equilibrium with GDP ( gross domestic product) and a higher price level.