AP Macroeconomics : Aggregate Supply and Demand Graphs
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Example Questions
Example Question #1 : Aggregate Supply And Demand Graphs
The long-run aggregate supply curve is likely to shift to the right when which of the following occurs?
A decrease in interest rates due to action by the Federal Reserve
A higher than estimated multipler effect
An increase in government spending due to government stimulus
An increase in worker productivity due to technological innovation
An increase in worker productivity due to technological innovation
An increase in worker productivity will result in the supply curve shifting, because it results in the economy having more potential output.
Example Question #1 : Graphs
A rightward shift of the aggregate demand curve will necessarily result in which of the following?
An increase in output and a decrease in price level
A decrease in output and a decrease in the price level
An increase in output and an increase in the price level
A decrease in output and an increase in price level
An increase in output and an increase in the price level
A rightward shift of the demand curve (i.e. an increase of the demand curve) causes price and quantity to increase.
Since the aggregate demand/aggregate supply (AD/AS) model represents price as price level and quantity as output, a rightward shift of the aggregate demand curve results in an increase in the price level and an increase in output.
If you selected "A decrease in output and a decrease in the price level" you may have found the effects after a leftward, rather than rightward, shift of the aggregate demand curve.
Answer choices "An increase in output and a decrease in price level" and "A decrease in output and an increase in price level" are incorrect because shifts in demand cause both price and output to rise simultaneously or fall simultaneously, but never cause price to rise and quantity to fall or price to fall and quantity to rise.
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