MBEC 6001 AD-AS Model

Suppose that the government announces a 5% increase in VAT (Value-added Tax).

Will this event affect AD or AS?

• AD

• AS

Suppose that the government announces a 5% increase in VAT (Value-added Tax).

Will this event cause a positive or negative shock?

• Positive Shock

• Negative Shock

Suppose that the government announces a 5% increase in VAT (Value-added Tax).

Using the AD-AS model, illustrate the effect of this event on output and prices.

• 
• 

Suppose that the government announces a 5% increase in VAT (Value-added Tax).

What effect does this event have on output and prices?

• Higher output level and higher price level.

• Lower output level and lower price level.

• Higher output level and lower price level.

• Lower output level and higher price level.

Suppose that the government announces a 5% increase in VAT (Value-added Tax).

How can you describe the state of the economy in the short-run?

• The economy is experiencing a recession and deflation.

• The economy is experiencing a recession and inflation (i.e. stagflation).

• The economy is experiencing an expansion and inflation.

• The economy is experiencing an expansion and deflation.

Suppose that there is an unexpected increase in wages.

Will this event affect AD or AS?

• AD

• AS

Suppose that there is an unexpected increase in wages.

Will this event cause a positive or negative shock?

• Positive Shock

• Negative Shock

Suppose that there is an unexpected increase in wages.

Using the AD-AS model, illustrate the effect of this event on output and prices.

• 
• 

Suppose that there is an unexpected increase in wages.

What effect does this event have on output and prices?

• Higher output level and higher price level.

• Lower output level and lower price level.

• Higher output level and lower price level.

• Lower output level and higher price level.

Suppose that there is an unexpected increase in wages.

How can you describe the state of the economy in the short-run?

• The economy is experiencing a recession and deflation.

• The economy is experiencing a recession and inflation (i.e. stagflation).

• The economy is experiencing an expansion and inflation.

• The economy is experiencing an expansion and deflation.