AP Macroeconomics 3.7: Long-Run Self-Adjustment
Explain how flexible wages, input prices, and inflation expectations shift SRAS after a shock and restore full employment in the long run.
- Syllabus
- Effective Fall 2025
- Course
- AP Macroeconomics
Covered syllabus points
3.7 Long-Run Self-Adjustment question 1
[Maximum number: 1]
The economies of Country L and Country A are currently in short-run equilibrium at output
levels below full employment. Both countries intend to use monetary policy to close their output
gaps. Country L has a banking system with limited reserves, and Country A has a banking
system with ample reserves.
Assume instead that no policy actions are taken in Country A and that the economy remains
in short-run equilibrium at an output level below full employment. Will short-run aggregate
supply in Country A increase, decrease, or remain the same as the economy self-adjusts in
the long run? Explain.
| D | State that short-run aggregate supply will increase until it reaches full employment and | 1 point |
|---|---|---|
| Point 5 | explain that the increase in short-run aggregate supply in the long run will be caused by a decrease in input prices (e.g., nominal wages) and/or inflationary expectations. |
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