AP Macroeconomics Unit

Jacob Clifford discusses economic scenarios during a recession, focusing on decisions businesses face, such as cutting workforce or wages. He explains aggregate demand and supply, output gaps, and long run self-adjustment. The video emphasizes how the economy self-corrects over time without policy intervention, and debates the flexibility of wages during recessions. Clifford concludes with a call to action for viewers to subscribe and use additional resources.

What decision might a business owner face during a recession?

• Hire more employees

• Expand the business

• Fire 10% of the workforce or reduce wages by 10%

• Increase prices by 10%

Which of the following is NOT a state of the economy discussed in the video?

• Zero inflation

• Full employment

• Positive output gap

• Negative output gap

What happens to the short-run aggregate supply during a positive output gap?

• It shifts to the right

• It remains unchanged

• It disappears

• It shifts to the left

Why might a negative output gap lead to a prolonged recession?

• Due to immediate government intervention

• Because of rapid wage increases

• Due to the multiplier effect and reduced spending

• Because of increased consumer spending

What is a common argument against the flexibility of wages during a recession?

• Unions and contracts prevent wage flexibility

• Wages are not affected by inflation

• Wages are always flexible downward

• Wages increase during a recession

What is the long-term effect of increased resources on the economy?

• The economy remains stagnant

• The long-run aggregate supply curve shifts to the right

• The economy experiences a recession

• The long-run aggregate supply curve shifts to the left

What is the ultimate goal of the economy's self-adjustment process?

• To return to full employment

• To achieve zero unemployment

• To decrease consumer spending

• To increase inflation

What is the effect of a decrease in consumer spending at full employment?

• It increases inflation

• It has no effect on the economy

• It causes a recession and a negative output gap

• It leads to a positive output gap

What is the role of government policies in economic self-adjustment?

• They only increase inflation

• They can be used to close gaps when self-adjustment is slow

• They are never used in economic adjustments

• They are always necessary for adjustment

What is the relationship between inflation and wages according to the video?

• Inflation has no effect on wages

• Higher inflation leads to lower wages

• Higher inflation leads to higher wages

• Wages decrease as inflation increases