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Macroeconomics: AD / AS REVIEW -- ANSWERS Use the graphs and the other information provided to answer the questions. BEFORE answering the questions DRAW the appropriate shifts on the graphs and use the graphs to FIND the answers 1. Assume that there is an increase in government spending Which determinant? _____G______ AD or AS? or 2. Assume that there is an increase in taxes Which determinant? ____TAXES_______ AD or AS? or AD AD What happens to: What happens to: Real GDP _______ ________ Real GDP _____ __________ Unemployment _____ __________ Unemployment _______ ________ Price Level ________ _______ Inflation _______ ________ Economic Growth ______ _________ [ GDP or potential GDP ?] GDP Price Level _____ __________ Inflation ___ (RATCHET EFFECT) Economic Growth ______ _________ [ GDP or potential GDP ?] 3. Assume that there is reduced gov’t red tape 4. Assume that there is an increase in business investment Which determinant? __ RED TAPE ____ AD or AS? Which determinant? ____I______ AD or AS? or or AS AD What happens to: What happens to: Real GDP _______ ________ Unemployment _______ ________ Price Level ______ _________ Inflation ______ _________ Economic Growth ______ _________ [ GDP or potential GDP ?] potential GDP Real GDP ______ _________ Unemployment ______ ________ Price Level ______ _________ Inflation ______ Economic Growth ______ _________ _________ [ GDP or potential GDP ?] GDP 5. Assume that there is an increase in oil prices 6. Assume that the Fed decreases the money due to war supply Which determinant? PRICE OF RESOURCES Which determinant? ______ MS _____ AD or AS? AD or AS? or or AS AD What happens to: What happens to: Real GDP ______ _________ Real GDP _____ __________ Unemployment ______ Price Level _______ _________ ________ Inflation ______ _________ Economic Growth ______ _________ [ GDP or potential GDP ?] Unemployment _____ _________ Price Level _____ __________ Inflation _ (RATCHET EFFECT)_ Economic Growth ______ _________ [ GDP or potential GDP ?] 7. Assume that there is new technology that reduces electricity costs Which determinant? _PRICE OF RESOURCES_ AD or AS? or 8. Assume that exports increase Which determinant? _____ Xn _____ AD or AS? or AD AS What happens to: Real GDP ______ What happens to: Real GDP ______ _________ Unemployment _____ __________ Price Level _______ ________ Inflation _____ __________ Economic Growth ______ _________ [ GDP or potential GDP ?] potential GDP _________ Unemployment _______ ________ Price Level ______ ________ Inflation _______ ________ Economic Growth ________ _______ [ GDP or potential GDP ?] GDP 9. Assume that there is a decrease in marginal 10. Assume that there is an poor harvests tax rates which increases labor productivity world wide which increases resource prices Which determinant? _ PRODUCTIVITY _ AD or AS? or Which determinant? _ PRICE OF RESOURCES __ AD or AS? or AS AS What happens to: What happens to: Real GDP _____ _________ Real GDP _____ _________ Unemployment _______ ________ Unemployment ______ ________ Price Level _______ ________ Price Level ______ ________ Inflation _______ ________ Inflation ______ ________ Economic Growth _______ _______ Economic Growth _____ __________ [ GDP or potential GDP ?] potential GDP [ GDP or potential GDP ?] 11. Assume that there is a rise in the foreign exchange value of the dollar 12. Assume that there is an increase in labor training and education Which determinant? ____ Xn ______ AD or AS? Which determinant? __ PRODUCTIVITY _ AD or AS? or or AS AD What happens to: What happens to: Real GDP _____ __________ Unemployment ______ Real GDP ______ _________ Price Level ______ _________ Inflation ______ _________ Economic Growth _______ ________ [ GDP or potential GDP ?] _________ Unemployment _______ ________ Price Level _______ ________ Inflation ______ _________ Economic Growth _______ ________ [ GDP or potential GDP ?] potential GDP 13. Assume that there is an increase in consumer debt 14. Assume that there is a decrease in consumer confidence Which determinant? _____ C _____ AD or AS? Which determinant? _____ C ______ AD or AS? or or AD AD What happens to: What happens to: Real GDP _______ ________ Real GDP _______ ________ Unemployment ______ ________ Price Level __ (RATCHET EFFECT)__ Inflation ______ _________ Economic Growth ______ _________ [ GDP or potential GDP ?] Unemployment _______ ________ Price Level __ (RATCHET EFFECT)_ Inflation _______ ________ Economic Growth ________ _______ [ GDP or potential GDP ?] 15. Assume that there is an recessions in Europe, Japan, and Canada 16. Assume that there are discoveries of new oil fields Which determinant? _____ Xn ___ AD or AS? Which determinant? _ PRICE OF RESOURCES_ AD or AS? or or AD AS What happens to: What happens to: Real GDP ______ _________ Real GDP _______ Unemployment ______ ________ _________ Unemployment _______ ________ Price Level _ (RATCHET EFFECT)_ Price Level ____ ___________ Inflation _______ ________ Inflation _____ __________ Economic Growth _____ __________ [ GDP or potential GDP ?] Economic Growth ______ _________ [ GDP or potential GDP ?] potential GDP 17. Assume that there is an increase in interest 18. Assume that there is a decrease in the rates not caused by price level changes amount of money in circulation Which determinant? ____ MS ______ AD or AS? or Which determinant? _____ MS _____ AD or AS? or AD AD What happens to: What happens to: Real GDP _____ _________ Real GDP _____ _________ Unemployment _____ Unemployment _____ ________ Price Level _ (RATCHET EFFECT)_ Inflation ______ ________ Economic Growth _____ _________ [ GDP or potential GDP ?] ________ Price Level _ (RATCHET EFFECT)_ Inflation ______ ________ Economic Growth ______ _______ [ GDP or potential GDP ?] 19. Assume that there is an international agreement to make businesses reduce pollution Which determinant? __RED TAPE_____ AD or AS? or 20. Assume that there is an more competition due to fewer trade restrictions Which determinant? _PRODUCTIVITY_ AD or AS? or AS AS What happens to: What happens to: Real GDP _____ ________ Real GDP _______ Unemployment ______ ______ ________ Unemployment ______ ________ Price Level _____ _________ Inflation _____ ________ Economic Growth ______ ________ [ GDP or potential GDP ?] Price Level ______ _______ Inflation ______ ______ Economic Growth _____ ________ [ GDP or potential GDP ?] POTENTIAL GDP
