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AP Macroeconomics 3.4 Long Run Aggregate Supply Lras Questions

Define LRAS as full-employment productive capacity, contrast short- and long-run price flexibility, and explain how capital formation shifts potential output.

Syllabus
Effective Fall 2022
Course
AP Macroeconomics

Exam points

  • contrast fixed short-run input prices with flexible long-run wages and prices that restore full employment
  • draw or identify a vertical LRAS curve at full-employment output YF on an AD-AS graph
  • place YF left of, right of or at short-run equilibrium to represent the economy's output gap
  • explain how investment and capital formation shift LRAS by changing potential output

Covered syllabus points

MOD-2.E—Define (using graphs as appropriate) the short run and the long runMOD-2.F—Define (using graphs as appropriate) the long-run aggregate supply (LRAS) curve

Question 1

[Maximum number: 1]

Classical economists believe that the economy moves toward full employment because

A

government spending supplements private investment to keep aggregate demand in balance with aggregate supply

B

households spend all of their disposable income to purchase the full-employment output

C

wages and prices are flexible

D

private investment is constant and independent of national income

E

the money supply grows at a constant rate to generate sufficient demand to purchase the full-employment output

Question 2

[Maximum number: 1]

Assume that Nepal is in long-run macroeconomic equilibrium and has an open economy.

Draw a correctly labeled graph of the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves for Nepal, and show each of the following.

The full-employment output, labeled YF\mathrm{Y}_{\mathrm{F}}

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