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AP Macroeconomics Mod 2 I Explain Using Graphs As Appropriate the Response of Output Employment and the Price Level to an Aggregate Demand or Aggregate Questions

Explain how flexible wages, input prices, and inflation expectations move SRAS after a shock, restoring full employment and the natural rate of unemployment.

Syllabus
Effective Fall 2022
Course
AP Macroeconomics

Exam points

  • explain how a recessionary gap lowers nominal wages, input prices, or expected inflation and shifts SRAS right
  • explain how an inflationary gap raises nominal wages, input prices, or expected inflation and shifts SRAS left
  • show the automatic SRAS shift on an AD-AS graph until output returns to YF at the AD-LRAS intersection
  • trace self-adjustment to full employment and natural unemployment, including the resulting price-level change
  • explain long-run AD neutrality: flexible wages and prices leave real output unchanged while the price level changes

AP Macroeconomics Mod 2 I Explain Using Graphs As Appropriate the Response of Output Employment and the Price Level to an Aggregate Demand or Aggregate Questions 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.

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