Mastering Aggregate Demand and Supply in Macroeconomics

Mr. Clifford introduces AP Econ students to the key concepts of aggregate demand and supply in macroeconomics. He explains how aggregate demand is downward sloping and consists of GDP components. The short run aggregate supply is upward sloping, with prices rising faster than wages, leading to increased production. In the long run, aggregate supply is vertical as wages adjust to price changes, maintaining full employment output. The video also covers inflationary and recessionary gaps, showing how shifts in demand and supply affect the economy's equilibrium.

What is the nature of the aggregate demand curve?

• Upward sloping

• Downward sloping

• Horizontal

• Vertical

Which of the following is NOT a component of GDP in aggregate demand?

• Consumption (C)

• Investment (I)

• Government Spending (G)

• Exports (E)

In the short run, why do firms produce more when price levels increase?

• Because resource prices decrease

• Because wages increase immediately

• Because demand decreases

• Because they make more profit

What happens to wages in the long run when price levels increase?

• Wages increase by the same amount

• Wages decrease

• Wages remain constant

• Wages increase by a smaller amount

Why is the long run aggregate supply curve vertical?

• Because resource prices fall

• Because demand decreases

• Because wages and prices increase proportionally

• Because production increases with price levels

What is an inflationary gap?

• When prices decrease

• When GDP is beyond full employment

• When wages fall

• When GDP is below full employment

What causes aggregate supply to shift left in an inflationary gap?

• Increase in exports

• Increase in resource prices and wages

• Decrease in consumer spending

• Decrease in government spending

What happens to prices in a recessionary gap?

• Prices fluctuate

• Prices decrease

• Prices remain constant

• Prices increase

How does aggregate supply adjust in a recessionary gap?

• It becomes vertical

• It shifts to the right

• It becomes horizontal

• It shifts to the left

What is the result of flexible wages and resource prices in a recessionary gap?

• Decrease in production

• Decrease in aggregate demand

• Increase in unemployment

• Increase in aggregate supply