AD-AS Model

AD-AS Model

Assessment

Flashcard

Social Studies

12th Grade

Practice Problem

Hard

Created by

Wayground Content

FREE Resource

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10 questions

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1.

FLASHCARD QUESTION

Front

If we are in long-run equilibrium, what impact will it have if taxes rise?

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Back

AD will shift left

Answer explanation

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AD moves if any component of GDP changes (C + I + G + NX). If taxes rise, Consumption will decrease

2.

FLASHCARD QUESTION

Front

If we are in long-run equilibrium, what impact will it have if exports go down?

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Back

AD will shift left

Answer explanation

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AD moves if any component of GDP changes (C + I + G + NX). A decrease in exports would mean there is a decrease in Net Exports.

3.

FLASHCARD QUESTION

Front

If we are in long-run equilibrium, what impact will it have if wages rise?

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Back

SRAS will shift left

Answer explanation

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SRAS moves if there is a change in the factors of production (land, labor, capital, technology) or input prices. Wages are an input, so higher wages decrease SRAS.

4.

FLASHCARD QUESTION

Front

If we are in long-run equilibrium, what will happen if the price of oil drops?

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Back

SRAS will shift right

Answer explanation

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SRAS moves if there is a change in the factors of production (land, labor, capital, technology) or input prices. Oil is an input.

5.

FLASHCARD QUESTION

Front

If we are in a positive output gap, how will we return to long-run equilibrium if the government does nothing?

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Back

SRAS will shift left

Answer explanation

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If the government does not intervene, wages will eventually rise (since employers have to really fight to keep their workers), and SRAS will fall since wages are an input price.

6.

FLASHCARD QUESTION

Front

If we are in a negative output gap, how will we return to long-run equilibrium if the government does nothing?

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Back

SRAS will shift right

Answer explanation

Media Image

If the government does not intervene, wages will eventually fall (since we're in a recession and people are desperate for work, so firms can pay them less without worrying about losing workers). This will cause SRAS to increase since wages are an input price.

7.

FLASHCARD QUESTION

Front

If we are in a positive output gap, what can we assume will happen to wages?

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Back

Wages will rise

Answer explanation

Media Image

If the government does not intervene, wages will eventually rise, since employers have to really fight to keep their workers. This will cause SRAS to decrease since wages are an input price.

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