3.3 and 3.4 Practice

3.3 and 3.4 Practice

You can do this!

Multiple Choice

Short-Run Aggregate supply or Long Run Aggregate Supply?

At least one input in production is fixed

• SRAS

• LRAS

• BOTH

• Neither- that's demand, you ignorant Hack!

Multiple Choice

Short-Run Aggregate supply or Long Run Aggregate Supply?

Inputs in production are all variable

• SRAS

• LRAS

• BOTH

• Neither- that's demand, you ignorant Hack!

Multiple Choice

Short-Run Aggregate supply or Long Run Aggregate Supply?

The curve is upward sloping

• SRAS

• LRAS

• BOTH

• Neither- that's demand, you ignorant Hack!

Multiple Choice

Short-Run Aggregate supply or Long Run Aggregate Supply?

The curve is downward sloping

• SRAS

• LRAS

• BOTH

• Neither- that's demand, you ignorant Hack!

Multiple Choice

Short-Run Aggregate supply or Long Run Aggregate Supply?

The curve is vertical

• SRAS

• LRAS

• BOTH

• Neither- that's demand, you ignorant Hack!

Shifting the SRAS

Take a look at the events on the following slides. Determine if the event would cause the SRAS to shift right or shift left or move up or down the curve.

Multiple Choice

There is a decrease in energy prices

Multiple Choice

There is an increase in wages

Multiple Choice

There is a decrease in the inflation rate

Multiple Choice

The government increases taxes on businesses

Multiple Choice

There is an increase in worker productivity

Multiple Choice

The CPI increases

Multiple Choice

There is an increase in the expected rate of inflation

Long Run Aggregate Supply (LRAS)

Multiple Choice

The AD curve slopes down because

• at high prices less is consumed and produced

• its the same as demand curve

• supply has to cut across

• all of these reasons

Multiple Choice

What would cause AD to decrease?

• an increase in taxes
• a decrease taxes
• an increase in government spending
• keeping government spending constant

Multiple Choice

The long run aggregate supply curve is also known as

• The natural rate of unemployment

• Full-employment

• The natural rate of employment

• Cyclical unemployment

Multiple Choice

The long run aggregate supply curve is vertical because...

• Price level increases but GDP doesn't

• GDP increases but price level doesn't

• GDP decreases but price level doesn't

• Price level decreases but GDP doesn't

Multiple Choice

An increase in which of the following is consistent with an outward shift in the production possibilities curve?

• Aggregate demand
• Income tax rates
• Long-run aggregate supply
• Exports

Multiple Choice

What is an inflationary gap?

• when output goes beyond full employment
• when output falls below full employment
• when unemployment increases
• when deflation is present in an economy

Multiple Choice

What is a recessionary gap?

• when ouput falls below potential
• when output exceeds potentional
• when output increases
• when unemployment decreases

Multiple Choice

What is the vertical line called on the AD/AS Model?

• short-run aggregate supply
• aggregate demand
• long run aggregate supply
• r GDP

Multiple Choice

What is on the "Y" axis on an AD/AS Model?

• Real GDP
• ouput
• price level
• price

Multiple Choice

What is represented on the "X" axis on the AD/AS Model?

• price level
• price
• Real GDP
• Nominial GDP

Multiple Choice

All of the following can shift aggregate supply, except

• Supply shocks from trading partners

• Increased business taxes

• Changes in the price level

• an innovation in technology

Multiple Choice

The multiplier effect shows

• How spending is magnified in the economy

• How much consumers can spend from their paychecks

• How much the government can spend from their budget

• How often the economy can survive recessions

Multiple Choice

The long run aggregate supply curve is also known as

• The natural rate of unemployment

• Full-employment

• The natural rate of employment

• Cyclical unemployment

Multiple Choice

The long run aggregate supply curve is vertical because...

• Price level increases but GDP doesn't

• GDP increases but price level doesn't

• GDP decreases but price level doesn't

• Price level decreases but GDP doesn't

Multiple Choice

The LRAS shows there is ________________________ between the price level and real GDP in the long run.

• a direct relationship

• an inverse relationship

• no relationship

• an undetermined relationship

Shifting the LRAS

Take a look at the events on the following slides. Determine if the event would cause the LRAS to shift right or shift left.

Multiple Choice

New technology increases labor productivity

Multiple Choice

Jobs training programs increase human capital

Multiple Choice

Large numbers of workers retire

Multiple Choice

Natural resources are depleted

AP Style Questions..

Let's practice

Multiple Choice

Part of the reason that aggregate demand is downward sloping is because

• there is a direct relationship between price level and the real GDP demanded

• lower price levels increase the demand for consumer goods

• lower price levels cause real interest rates to increase and increase investment

• higher price levels increase the demand for interest-sensitive durable goods

• higher price levels decrease the purchasing power of money which decreases the quantity of consumption

Explanation

Three concepts explain why there is an inverse relationship between price level and the quantity of real GDP demanded: the real-balance effect (also called the wealth effect), the interest rate effect, and the net-export effect. Answer E is the real-balance effect which states that inflation reduces purchasing power causing the quantity consumers purchase to decrease. Answer B is incorrect because changes in price level change quantity demanded not demand.

Multiple Choice

Assume that current real GDP falls short of full-employment output by $400 billion and the marginal propensity to consume is 0.8. What is the minimum increase in government spending that could bring about full employment?

• $40 billion

• $80 billion

• $100 billion

• $320 billion

• $400 billion

The Answer

To answer this question you need to apply the three equations below. First you had to calculate the MPS (which is .2). Next you needed to calculate the multiplier (which is 5). An initial increase in government spending of $80 billion would get multiplied by 5 and close the recessionary gap of $400 billion.

Open Ended

What are 3 things you can do and 3 resources you can use to make sure you understand the AD/AS Model? (Yes, I want specifics..)