Analyze an AD-AS graph where AD shifts left.
Price level decreases, and real GDP decreases.
Analyze an AD-AS graph where AD shifts right.
Price level increases, and real GDP increases.
Analyze an AD-AS graph where SRAS shifts left.
Price level increases, and real GDP decreases.
Analyze an AD-AS graph where SRAS shifts right.
Price level decreases, and real GDP increases.
In an AD-AS graph, what does a leftward shift of the AD curve indicate?
It represents a decrease in aggregate demand, leading to lower price levels and reduced real GDP.
In an AD-AS graph, what does a rightward shift of the SRAS curve indicate?
It represents an increase in short-run aggregate supply, leading to lower price levels and increased real GDP.
What happens to unemployment when the AD curve shifts to the left?
Unemployment increases as real GDP decreases.
What happens to unemployment when the SRAS curve shifts to the right?
Unemployment decreases as real GDP increases.
In an AD-AS model, what are the axes?
The vertical axis represents the price level, and the horizontal axis represents real GDP.
What does the intersection of the AD and SRAS curves represent?
It represents the short-run equilibrium point, where the aggregate quantity demanded equals the aggregate quantity supplied.
What is the impact of increased government spending on real GDP?
Increased government spending increases AD, leading to a rise in real GDP in the short run.
What is the impact of increased taxes on consumer spending?
Increased taxes reduce disposable income, leading to a decrease in consumer spending.
What is the impact of tariffs on the price level?
Tariffs increase production costs, decreasing SRAS and leading to a higher price level.
How does a reduction in corporate taxes impact SRAS?
It decreases production costs, shifting SRAS to the right.
What is the effect of expansionary fiscal policy on the AD-AS model?
Expansionary fiscal policy (increased government spending or decreased taxes) shifts the AD curve to the right, increasing both price level and real GDP.
What is the effect of contractionary fiscal policy on the AD-AS model?
Contractionary fiscal policy (decreased government spending or increased taxes) shifts the AD curve to the left, decreasing both price level and real GDP.
How does a subsidy for renewable energy affect SRAS?
A subsidy decreases production costs, shifting SRAS to the right.
What is the impact of increased regulations on businesses?
Increased regulations increase production costs, shifting SRAS to the left.
How does government investment in infrastructure impact AD?
It directly increases government spending (G), shifting AD to the right.
What is the effect of tax cuts on investment spending?
Tax cuts increase after-tax profits, which can encourage investment spending, shifting AD to the right.
What are the differences between a movement *along* the AD curve and a shift *of* the AD curve?
A movement along the AD curve is caused by a change in the price level. A shift of the AD curve is caused by changes in C, I, G, or (X-M).
What are the differences between a movement *along* the SRAS curve and a shift *of* the SRAS curve?
A movement along the SRAS curve is caused by a change in the price level. A shift of the SRAS curve is caused by changes in resource costs, government actions, or productivity.
Compare and contrast fiscal policy and monetary policy.
Fiscal policy involves government spending and taxation, while monetary policy involves managing the money supply and interest rates.
What is the difference between AD and SRAS?
AD represents the total demand for goods and services, while SRAS represents the total supply of goods and services in the short run.
Compare positive and negative supply shocks.
A positive supply shock increases SRAS, while a negative supply shock decreases SRAS.
Differentiate between changes in consumer confidence and business confidence.
Changes in consumer confidence affect consumer spending (C), while changes in business confidence affect investment spending (I).
Differentiate between taxes and subsidies.
Taxes increase costs for consumers and producers, while subsidies decrease costs for consumers and producers.
Compare the effects of increased government spending and increased net exports on AD.
Both increase AD, shifting the curve to the right, leading to higher price levels and real GDP.
What is the difference between short-run and long-run aggregate supply?
SRAS is upward sloping and affected by input prices, while LRAS is vertical and determined by the economy's potential output.
Compare the effects of a decrease in taxes and a decrease in interest rates on aggregate demand.
A decrease in taxes increases disposable income, boosting consumer spending, while a decrease in interest rates encourages investment spending; both shift AD to the right.
