At an inflationary gap,

output is high and unemployment is less than NRU

In the long run, prices and wages are flexible, so then

the model adjusts back to equilibrium

Initially at full employment, in the AD and AS model, if government increases spending

price level and output will increase

What happens with stagflation?

both inflation and unemployment increase

At a recessionary gap

output is low and unemployment is larger than NRU

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Aggregate Demand and Aggregate Supply

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AP Macro questions for review

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Questions 10

Answers

1
A substantial increase in workers wages, what will occur?
AS stays the same
AS decreases
Long run AS increases
AD decreases
2
If AD increases and wages/prices are flexible, then
AS will not change
AS will shift left
AS will shift right
price level moves to the right along the curve
3
At an inflationary gap,
output is low and unemployment is high
output is high and unemployment larger than NRU
price level is high and unemployment is high
output is high and unemployment is less than NRU
4
In the long run, prices and wages are flexible, so then
long run AS curve is horizontal
AD will decrease after increasing
government is needed to obtain equilibrium
the model adjusts back to equilibrium
5
If the economy is at equilibrium, and consumer confidence declines, what situation then occurs
recessionary gap
long run AS increases
inflationary gap
stagflation
6
Initially at full employment, in the AD and AS model, if government increases spending
price level and output will go back to equilibrium
price level and output will stay the same
price level and output will decrease
price level and output will increase
7
What happens with stagflation?
both inflation and unemployment decrease
inflation decreases, unemployment increases
inflation increases, unemployment decreases
both inflation and unemployment increase
8
At a recessionary gap
output is low and unemployment is smaller than NRU
price level and unemployment are both increasing
output is low and unemployment is larger than NRU
output is high and unemployment is larger than NRU
9
A decrease in interest rates, and no change in price level, what occurs?
AD increases
AD decreases
increase in real GDP output
AS decreases
10
If automation increases productivity nationwide, what occurs?
Short run AS increases only
AD increases
AD and AS increase
Short run and long AS increase

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