AP Macro Aggregate Models 2

Question 1

In the AD-AS model, a negative supply shock (like a sudden rise in oil prices) will most likely cause:

Accepted Answer

Leftward shift of SRAS, higher price level, lower output

Answer

A negative supply shock increases production costs, shifting SRAS left, which raises the price level and reduces real GDP simultaneously (stagflation).

Question 2

If the economy is operating above full employment (inflationary gap), which self-correcting mechanism will eventually restore long-run equilibrium without policy intervention?

Accepted Answer

Workers will demand higher wages, shifting SRAS leftward

Answer

In an inflationary gap, tight labor markets cause workers to negotiate higher wages, raising input costs and shifting SRAS left until output returns to potential.

Question 3

The long-run aggregate supply (LRAS) curve is vertical because:

Accepted Answer

Real GDP is determined solely by available resources and technology, not price level

Answer

LRAS is vertical at potential GDP because long-run output depends on factor endowments and technology, not the nominal price level.

Question 4

Which of the following shifts aggregate demand to the RIGHT?

Accepted Answer

A decrease in the interest rate by the central bank

Answer

Lower interest rates reduce the cost of borrowing, boosting consumer spending and business investment, which increases aggregate demand.

Question 5

In the Keynesian cross model, the economy reaches equilibrium when:

Accepted Answer

Actual expenditure equals planned expenditure

Answer

Equilibrium in the Keynesian cross occurs where the planned expenditure line intersects the 45-degree line, meaning planned spending equals actual output.

AP Practice Test

AP Practice Test

AP Macro Aggregate Models 2