2.2.6 Determinants of LRAS — Practice Questions

Seven original multiple-choice questions on the determinants of long-run aggregate supply, written to the style and difficulty of AQA Paper 3 Section A. One asks you to sketch the diagram yourself.

7 questions AQA A-Level Multiple choice Model answers included

Not read the notes yet? Start with the 2.2.6 Determinants of LRAS revision notes.

1. 1. Long-run aggregate supply represents

   Definition in context

   Select one answer

   A The economy's productive capacity when factors are fully employed.

   B The output firms supply when at least one factor is fixed.

   C The total planned spending on domestic output at each price level.

   D The total value of output actually produced last year.
   Show model answer

   Answer: A (The economy's productive capacity when factors are fully employed.). LRAS shows what an economy is capable of producing when all its factors of production are fully and efficiently employed. It is a statement about capacity, not about what is currently being produced — which is why a shift in LRAS is equivalent to an outward shift of the production possibility frontier.

   Why the other options are wrong

   • B — A fixed factor is the short-run assumption, and it describes SRAS. In the long run all factors can be varied.
   • C — Total planned spending at each price level is aggregate demand, which sits on the other side of the model.
   • D — Output actually produced is real GDP, an outcome. LRAS is the ceiling that output could reach, and economies frequently sit below it.

2. 2. On the Classical view, the long-run aggregate supply curve is

   Definition in context

   Select one answer

   A Downward sloping, because higher prices reduce demand.

   B Horizontal, because firms supply any output at the going price.

   C Upward sloping, because unit costs rise as output rises.

   D Vertical, because output does not depend on the price level.
   Show model answer

   Answer: D (Vertical, because output does not depend on the price level.). Classical economists argue that in the long run wages and prices adjust until the economy returns to full employment. Long-run output is therefore fixed by the quantity and quality of the factors of production, and is completely unresponsive to the price level — a perfectly inelastic, vertical curve at Yfe.
   The consequence is stark: changes in aggregate demand affect only the price level in the long run.

   Why the other options are wrong

   • A — No aggregate supply curve slopes downwards. Falling supply as prices rise would make no sense for producers.
   • B — A horizontal curve is the Keynesian shape where there is large spare capacity, and even then only over part of the range.
   • C — An upward slope is the short-run curve, where rising unit costs mean firms need a higher price to supply more.

3. 3. Sketching a Keynesian long-run aggregate supply curve, the curve is perfectly elastic where

   Applied reasoning Sketch to solve

   Select one answer

   A Resources are fully and efficiently employed.

   B The economy has large amounts of spare capacity.

   C The economy is at full capacity output.

   D The price level is above its long-run level.
   Show model answer

   Answer: B (The economy has large amounts of spare capacity.). Draw the Keynesian curve as an L: flat at low output, then curving upwards, then vertical at Yfe.
   The flat stretch is where spare capacity is large. Unemployed workers and idle machinery can be brought back into use without bidding up wages or input prices, so firms expand output at an unchanged price level — which is exactly what perfect elasticity means.

   Why the other options are wrong

   • A — Full and efficient employment of resources is the vertical end of the curve, where no more output is possible at any price.
   • C — At full capacity output the curve is perfectly inelastic, not perfectly elastic. These are opposite ends of the same curve.
   • D — The shape of the Keynesian curve depends on how much spare capacity there is, not on where the price level happens to sit.

4. 4. Which one of the following would shift the long-run aggregate supply curve to the right?

   Applied reasoning

   Select one answer

   A A fall in the price of imported raw materials.

   B A rise in consumer confidence.

   C A rise in spending on education and training.

   D A temporary fall in wage costs.
   Show model answer

   Answer: C (A rise in spending on education and training.). LRAS shifts when the quantity or quality of the factors of production changes. Education and training raise the quality of labour, so the same workforce can produce more — a permanent increase in the economy's productive potential.

   Why the other options are wrong

   • A — Cheaper raw materials lower current production costs, which shifts SRAS. Productive capacity is unchanged.
   • B — Consumer confidence is a determinant of consumption, so it shifts AD. It has nothing to do with the supply side.
   • D — A temporary change in costs shifts SRAS and then unwinds. LRAS only moves when capacity itself changes.

5. 5. An outward shift of the long-run aggregate supply curve is equivalent to

   Applied reasoning

   Select one answer

   A A movement along the production possibility frontier.

   B A point inside the production possibility frontier.

   C An inward shift of the production possibility frontier.

   D An outward shift of the production possibility frontier.
   Show model answer

   Answer: D (An outward shift of the production possibility frontier.). Both diagrams show the same thing in different form: the maximum an economy is capable of producing. LRAS shifting right and the PPF shifting outwards are two representations of long-run economic growth — more or better factors of production, so a higher ceiling on output.

   Why the other options are wrong

   • A — A movement along the frontier is a change in the combination of goods produced, with capacity unchanged. LRAS would not move.
   • B — A point inside the frontier means resources are unemployed. That is a position within existing capacity, not a change in it.
   • C — An inward shift is a loss of productive potential, which would correspond to LRAS shifting left.

6. 6. A country invests heavily in training its workforce. This shifts the LRAS curve to the right by improving the

   Applied reasoning

   Select one answer

   A Quality of capital.

   B Quality of labour.

   C Quantity of capital.

   D Quantity of labour.
   Show model answer

   Answer: B (Quality of labour.). Training does not create extra workers, so the quantity of labour is unchanged. What changes is how productive each worker is: the same number of people can now produce more, which is an improvement in the quality of labour.
   The quantity/quality distinction runs through every LRAS factor — migration adds quantity, education adds quality, and both shift the curve right.

   Why the other options are wrong

   • A — Capital is machinery, buildings and equipment. Its quality is raised by better technology, not by training people.
   • C — Training buys no new machinery, so the capital stock is unchanged. That would need investment in physical capital.
   • D — The number of workers is the same. Migration or a rising birth rate would change the quantity of labour.

7. 7. An economy's long-run aggregate supply curve shifts to the right while aggregate demand is unchanged. All other things being equal, the most likely result is

   Applied reasoning

   Select one answer

   A Higher real output and a lower price level.

   B Higher real output and a higher price level.

   C Lower real output and a higher price level.

   D Lower real output and a lower price level.
   Show model answer

   Answer: A (Higher real output and a lower price level.). Hold AD still and slide LRAS to the right. The intersection travels down and to the right along the fixed AD curve: real output rises and the price level falls.
   This is why supply-side improvement is so prized. Demand-side expansion raises output at the cost of higher prices; growth driven by capacity delivers more output and takes pressure off inflation — non-inflationary growth.

   Why the other options are wrong

   • B — A higher price level accompanies growth driven by demand. Here the extra output comes from the supply side, which eases price pressure.
   • C — This is a leftward shift of supply — the stagflation case. The stem describes capacity increasing, not shrinking.
   • D — Output rises rather than falls. More productive capacity, met by the same demand, means more can be produced and sold.