Macroeconomics: AD / AS REVIEW
ANSWERS

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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___

D AD or D AS? AD

 

What happens to:

Price Level _______________

Real GDP _______________

Inflation _______________

Unemployment _______________

Economic Growth _______________

[D GDP or D potential GDP ?] D GDP

2. Assume that there is an increase in taxes

Which determinant? __TAXES_____

D AD or D AS? AD

 

What happens to:

Price Level _______________

Real GDP _______________

Inflation __ (RATCHET EFFECT)

Unemployment _______________

Economic Growth _______________

[D GDP or D potential GDP ?]

3. Assume that there is reduced gov’t red tape

Which determinant? _RED TAPE_____

D AD or D AS? AS

 

What happens to:

Price Level _______________

Real GDP _______________

Inflation _______________

Unemployment _______________

Economic Growth _______________

[D GDP or D potential GDP ?]
D potential GDP

4. Assume that there is an increase in business investment

Which determinant? _____I_______

D AD or D AS? AD

 

What happens to:

Price Level _______________

Real GDP _______________

Inflation _______________

Unemployment _______________

Economic Growth _______________

[D GDP or D potential GDP?] D GDP

 

5. Assume that there is an increase in oil prices due to war

Which determinant? PRICE OF RESOURCES

D AD or D AS? AS

 

What happens to:

Price Level _______________

Real GDP _______________

Inflation _______________

Unemployment _______________

Economic Growth _______________

[D GDP or D potential GDP ?]

 

6. Assume that the Fed decreases the money supply

Which determinant? ___MS_________

D AD or D AS? AD

 

What happens to:

Price Level __ (RATCHET EFFECT)__

Real GDP _______________

Inflation _______________

Unemployment _______________

Economic Growth _______________

[D GDP or D potential GDP ?]

 

7. Assume that there is new technology that reduces electricity costs

Which determinant? PRICE OF RESOURCES

AD or D AS? AS

 

What happens to:

Price Level _______________

Real GDP _______________

Inflation _______________

Unemployment _______________

Economic Growth _______________

[D GDP or D potential GDP ?]
D potential GDP

 

8. Assume that exports increase

Which determinant? _____Xn_______

D AD or D AS? AD

What happens to:

Price Level _______________

Real GDP _______________

Inflation _______________

Unemployment _______________

Economic Growth _______________

[D GDP or D potential GDP ?] D GDP

 

9. Assume that there is a decrease in marginal tax rates which increases labor productivity

Which determinant? _PRODUCTIVITY__

D AD or D AS? AS

What happens to:

Price Level _______________

Real GDP _______________

Inflation _______________

Unemployment _______________

Economic Growth _______________

[D GDP or D potential GDP ?]
D potential GDP

 

10. Assume that there is an poor harvests world wide which increases resource prices

Which determinant? _PRICE OF RESOURCES___________

D AD or D AS? AS

What happens to:

Price Level _______________

Real GDP _______________

Inflation _______________

Unemployment _______________

Economic Growth _______________

[D GDP or D potential GDP ?]

 

11. Assume that there is a rise in the foreign exchange value of the dollar

Which determinant? ___Xn_________

D AD or D AS? AD

What happens to:

Price Level _______________

Real GDP _______________

Inflation _______________

Unemployment _______________

Economic Growth _______________

[D GDP or D potential GDP ?]

 

12. Assume that there is an increase in labor training and education

Which determinant? __PRODUCTIVITY___

D AD or D AS? AS

What happens to:

Price Level _______________

Real GDP _______________

Inflation _______________

Unemployment _______________

Economic Growth _______________

[D GDP or D potential GDP ?]
D potential GDP

 

13. Assume that there is an increase in consumer debt

Which determinant? ___C_________

D AD or D AS? AD

 

What happens to:

Price Level _ (RATCHET EFFECT)_

Real GDP _______________

Inflation _______________

Unemployment _______________

Economic Growth _______________

[D GDP or D potential GDP ?]

 

14. Assume that there is a decrease in consumer confidence

Which determinant? ____C________

D AD or D AS? AD

What happens to:

Price Level _ (RATCHET EFFECT)_

Real GDP _______________

Inflation _______________

Unemployment _______________

Economic Growth _______________

[D GDP or D potential GDP ?]

 

15. Assume that there is an recessions in Europe, Japan, and Canada

Which determinant? ___Xn_________

D AD or D AS? AD

 

What happens to:

Price Level _ (RATCHET EFFECT)_

Real GDP _______________

Inflation _______________

Unemployment _______________

Economic Growth _______________

[D GDP or D potential GDP ?]

 

16. Assume that there are discoveries of new oil fields

Which determinant? _PRICE OF RES_____

D AD or D AS? AS

What happens to:

Price Level _______________

Real GDP _______________

Inflation _______________

Unemployment _______________

Economic Growth _______________

[D GDP or D potential GDP ?]
D potential GDP

 

17. Assume that there is an increase in interest rates not caused by price level changes

Which determinant? __MS__________

D AD or D AS? AD

What happens to:

Price Level _ (RATCHET EFFECT)_

Real GDP _______________

Inflation _______________

Unemployment _______________

Economic Growth _______________

[D GDP or D potential GDP ?]

 

18. Assume that there is a decrease in the amount of money in circulation

Which determinant? ____MS________

D AD or D AS? AD

 

What happens to:

Price Level _ (RATCHET EFFECT)_

Real GDP _______________

Inflation _______________

Unemployment ___