Aggregate Model- Shifting AD or AS + or - shocks

The economy is currently operating below full employment, assume no government policy action. How will the economy adjust in the long run?

• positive supply shock, increase SRAS

• negative supply shock, decrease SRAS

• positive demand shock, increase AD

• negative demand shock, decrease AD

• Increase LRAS

Increase in expected rate of inflation

• positive supply shock, increase SRAS

• negative supply shock, decrease SRAS

• positive demand shock, increase AD

• negative demand shock, decrease AD

• Increase LRAS

Stagflation cost push inflation

• positive supply shock, increase SRAS

• negative supply shock, decrease SRAS

• positive demand shock, increase AD

• negative demand shock, decrease AD

• Increase LRAS

Government lowers corporate taxes

• positive supply shock, increase SRAS

• negative supply shock, decrease SRAS

• positive demand shock, increase AD

• negative demand shock, decrease AD

• Increase LRAS

Short run change when Government lowers income taxes

• positive supply shock, increase SRAS

• negative supply shock, decrease SRAS

• positive demand shock, increase AD

• negative demand shock, decrease AD

• Increase LRAS

Short run effect if the Federal reserve buys bonds on the open market

• positive supply shock, increase SRAS

• negative supply shock, decrease SRAS

• positive demand shock, increase AD

• negative demand shock, decrease AD

• Increase LRAS

Which change would cause higher unemployment and lower price levels in the short run

• positive supply shock, increase SRAS

• negative supply shock, decrease SRAS

• positive demand shock, increase AD

• negative demand shock, decrease AD

• Increase LRAS

Which change would cause lower unemployment and lower price levels in the short run

• positive supply shock, increase SRAS

• negative supply shock, decrease SRAS

• positive demand shock, increase AD

• negative demand shock, decrease AD

• Increase LRAS

Which change would cause lower unemployment and higher price levels in the short run

• positive supply shock, increase SRAS

• negative supply shock, decrease SRAS

• positive demand shock, increase AD

• negative demand shock, decrease AD

• Increase LRAS

If economy is at full employment and the government cuts income taxes, how will the economy adjust to long run equilibrium without further government policy intervention?

• positive supply shock, increase SRAS

• negative supply shock, decrease SRAS

• positive demand shock, increase AD

• negative demand shock, decrease AD

• Increase LRAS