The Aggregate Demand - Aggregate Supply Problem Set[1]

1. Suppose that there is a positive aggregate supply shock. Which graph most accurately shows how this would affect the aggregate demand - aggregate supply model? Note that the new curve is shown in gray.

a. AS curve shifts right:

b. AD curve shifts right:

c. AS curve shifts left:

d. AD curve shifts left:

2. Suppose that there is a positive aggregate demand shock. Which graph most accurately shows how this would affect the aggregate demand - aggregate supply model? Note that the new curve is shown in gray.

a. AS curve shifts right:

b. AD curve shifts right:

c. AS curve shifts left:

d. AD curve shifts left:

3. Suppose that we observe a decrease in wages. Which graph most accurately shows how this would affect the aggregate demand - aggregate supply model? Note that the new curve is shown in gray.

a. AS curve shifts right:

b. AD curve shifts right:

c. AS curve shifts left:

d. AD curve shifts left:

4. Suppose that we observe relative price increase of US goods. Which graph most accurately shows how this would affect the aggregate demand - aggregate supply model? Note that the new curve is shown in gray.

a. AS curve shifts right:

b. AD curve shifts right:

c. AS curve shifts left:

d. AD curve shifts left:

Use the following information to answer questions 5 through 7:

The graph below shows the AD-AS diagram for Spain. All numbers are in billions.

5. What is the level of Potential GDP in Spain?

6. What is the size of real GDP in the short-run equilibrium?

7. What is the price level in the short-run equilibrium?

Use the following information to answer questions 8 through 11:

The graph below shows the AD-AS diagram for Spain. Suppose that the economy experiences a negative aggregate demand shock denoted by the move from AD1 to AD2.

Note that the new curve is shown in gray.

8.What has happened to the cyclical unemployment in Spain (select one)?

a.Cyclical unemployment remains the same.

b.Cyclical unemployment decreased.

c.Cyclical unemployment increased.

9.What happened to the frictional unemployment in Spain (select one)?

a.Frictional unemployment remained the same.

b.Frictional unemployment decreased.

c.Frictional unemployment increased.

10.What happened to the structural unemployment in Spain(select one)?

a.Structural unemployment remained the same.

b.Structural unemployment decreased.

c.Structural unemployment increased.

11.What happened to the price levels in Spain(select one)?

a.Price levels remained the same.

b.Price levels decreased.

c.Price levels increased.

Use the following information to answer questions 12 through 15:

The graph below shows the AD-AS diagram for Spain. Suppose that the economy experiences a positive aggregate supply shock denoted by the move from SRAS1 to SRAS2.

Note that the new curve is shown in gray.

12.What happened to the cyclical unemployment in Spain (select one)?

a.Cyclical unemployment remains the same.

b.Cyclical unemployment decreased.

c.Cyclical unemployment increased.

13.What happened to the frictional unemployment in Spain (select one)?

a.Frictional unemployment remains the same.

b.Frictional unemployment decreased.

c.Frictional unemployment increased.

14.What happened to the structural unemployment in Spain (select one)?

a.Structural unemployment remains the same.

b.Structural unemployment decreased.

c.Structural unemployment increased.

15.What happened to the price levels in Spain (select one)?

a.Price levels remain the same.

b.Price levels decreased.

c.Price levels increased.