1. Objectives of the AD/AS Chapter
1. Define AD & AS.
AD – AQD [RGDP] desired by the private, public, & foreign
sector at various PLs [inverse] [Everyone’s demand for everything]
AS – AQS [RGDP] firms will supply at various PLs [direct]
2. Three reasons for the down-sloping AD curve
a. interest rate effect b. real-balances effect c. foreign purchase effect
3. Know the three ranges of the AS curve.
4. Predict effects of an increase in AD in
Keynesian, intermediate, & classical ranges.
5. Predict effects of an increase/decrease in AS
on output and price level.
6. Know the four AD shifters [C+Ig+G+Xn].
7. Know the three AS shifters [“REP”].
8. Explain the ratchet effect of a decrease in AD.
9. Compare the Classical/Keynesian Schools of Economics.

2. Aggregate Demand Aggregate Supply
[Demand (AD) for everything by everyone] or
[Amount of goods & services that will be demanded at various price levels by the private, public, and
foreign sectors]
[AQD will be greater at lower price levels]
Aggregate Demand
[amount of goods and services that will
be produced by firms at various price levels]
[AQS will be greater at higher price levels]
Aggregate Supply
Aggregation – combining all prices into a single
aggregate price level and – combining all quantities
into aggregate quantities [AQS or real GDP]

3. Aggregate Demand & Aggregate Supply
SRAS
[REP]
Price
Level AD
LRAS
[Production cost]
CIG-Xn
PLe Ye
RDO [Real Domestic Output]
[C+Ig+G+Xn] When one of these variables change, either positively or negatively, the AD curve will move right or left. 10 10 10

4. Caused by a “Change in PL”
Change In AQD
Change In AQS
Macro Law of Demand
[Inverse]
Macro Law of Supply
[DIRECT ] AD AS
PL1
PL1
PL2
PL2
AQD1
AQD2
AQS2
AQS1
AQD or AQS is a point on the AD or AS curve [particular PL]
AD or AS is the whole curve and represents all price levels.
[Bunch of AQDS or AQS strung together on the same curve]

5. Change in AQD AD
PL1
[Inverse]
PL2
AQD1
AQD2 PL
AQD

6. AS PL1 PL2 [DIRECT] AQS2 AQS1 There go some of my profits!
Change in AQS
There go some
of my profits! AS
PL1
PL2
[DIRECT]
AQS2
AQS1

7. Change in AQS AS
PL2
[DIRECT ]
PL1
AQS1
AQS2

8. CIG-X [REP] YR Y* YI LRAS PL AD2 AS Shifters AD1 AD Shifters
[C+Ig+G+Xn]
Consumption
Investment (gross)
Government Spending
[infrastructure, military
spending, health care]
Net eXports PL
SRAS2
AS Shifters
[REP]
Resource cost
Environment
[legal-institutional]
1. Subsidies,
2. Business taxes,
3. Business regs.
Productivity
AD2
AD1
SRAS1
CIG-X
SRAS2
AD2
103 YR Y* YI
RGDP
Aggregation – we are combining all prices into price level & combining all quantities into Real GDP(Y).
Y indicates 3 things:
1. Output[GDP]
2. Income
3. Unemployment
YR – Recession gap
YI – Inflation gap
Y* – Full Employ.
Don’t confuse FE output
with the economy’s
maximum output, which
is the larger output that
would be produced if
everyone were forced
to work as much as
possible.

9. Aggregate Demand & Aggregate Supply
SRAS
[REP]
Price
Level AD
LRAS
[Production cost]
CIG-Xn
PLe Ye
RDO [Real Domestic Output]
[C+Ig+G+Xn] When one of these variables change, either positively or negatively, the AD curve will move right or left. 10 10 10

10. Long-Run v. Short-Run
Long-Run
Period of time where input prices [wages] are completely flexible and adjust to changes in the PL
In the long-run, the level of Real GDP supplied is independent of the PL
Short-Run
Period of time where input prices [wages] are sticky and do not adjust to changes in the PL
In the short-run, the level of Real GDP supplied is directly related to the PL

11. Increase in AD Increase in AD YR YF [caused by “C+Ig+G+Xn”] SRAS LRAS
Increase in Consumption
Increase in Investment
Increase in Gov. spending
A. On military spending
B. On the infrastructure
C. On health care
4. Increase in Net exports [Xn]
A. Dollar depreciates
B. Trade partners Y’s rise
Price Level YR YF
Real Domestic Output, RGDP

12. Decrease in AD Decrease in AD YR YF [caused by “C+Ig+G+Xn”] SRAS LRAS
Decrease in Consumption
Decrease in Investment
Decrease in Gov. spending
A. On military spending
B. On the infrastructure
C. On health care
4. Decrease in Net exports [Xn]
A. Dollar appreciates
B. Trade partners Y’s fall
Price Level YR YF
Real Domestic Output, GDP

13. The amounts of real output that buyers
AGGREGATE DEMAND
The amounts of real output that buyers
[householders, businesses, government, & foreigners]
desire to purchase at each possible price level.
Or, the “demand for everything by everyone”.
AD curve is downsloping due to:
Real Wealth [Money-balances] Effect
[monthly flow of money and stock of accumulated
savings balances like bonds & CDs “really” buy more]
Interest-Rate Effect - businesses invest more
Foreign Purchases Effect - foreigners buy more
[There is no income or substitution effect.]
[You can’t substitute for the whole economy] AD
PL1
PL2
AQD1
AQD2

14. Law of Aggregate Demand [Change in AQD] AD
Macro Law of Demand
[cause] [effect]
PL decr; AQD incr.
PL incr; AQD decr.
“AD” refers to whole curve.
“AQD” is a pt on the curve
based on a particular PL. AD
Reasons For Downsloping “AD” Curve
[if PL decreases, this happens]
1. Interest Rate Effect – more Ig
2. Real Wealth Effect – more “C”
3. Foreign Purchase Effect - foreigners buy more
PL1
Change in AQD
1. Price Level change
2. Movement [up or down
the AD curve
3. Pt to pt [along the AD curve] PL
AQD
PL2
Inverse relationship
“AD” refers to the “whole curve”. [“all PLs”]
“AQD” refers to a “point on the curve”
based on a “particular price level.”
AQD1
AQD2

15. C Ig G XN Change in AD AD2 AD1 AD3 AQD1 AQD3 RDO AQD2 Consumption PL
1. “Non price Level” change-either C, Ig, G, or Xn
2. “Whole AD curve” shifts
[There is a change in AQD but it is not caused by
a change in price level.]
Consumption
Mariah Carey Concert Ig
AD2
AD1
AD3 G PL
Let there be more
military weapons XN
AQD1
RDO
Chevy Ferrari
AQD3
AQD2
[Exports-Imports]

16. What Will Shift AD to The Right?PL
Change in Consumer Spending
Consumer Wealth [increases/decreases] [stocks/houses] [stable prices]
Consumer Expectations [about future prices (increases/decreases)
Consumer Expectations about future income [positive/negative]
Consumer Indebtedness [low/high]
Personal Taxes [increase/decrease]
Real Interest Rate [stable prices] [increase/decrease]
Change in Investment Spending
High Debt
Real Interest Rates [stable prices] [increase/decrease]
[Positive/Negative] Profit Returns
[Business taxes [increase/decrease]
[Depleted/Excess] inventory stockpiles in the supply chain

17. Shifters of the AD Curve
[continued]
Shifters of the AD Curve
Government Spending [purchases]
[either [increases/decreases] on [infra-
structure, military, health care, etc.]
Net Export Spending
AD1
AD2
National Income Abroad
[either increases or decreases]
Exchange Rates
[Depreciation-increases AD; Appreciation-decreases AD] PL
More Exports
[Our products are cheaper]
Fewer Exports
[Our products are more expensive]

18. Actual PL Higher Than Anticipated
LRAS PL
SRAS AD
103 Y* 6%
Real GDP
While it may appear contradictory to talk about producing beyond the economy’s potential, remember that potential output does not mean zero unemployment.
Rather, it means that the actual unemployment rate equals the natural rate of unemployment, approximately 94%-96% of the labor force working.

19. Actual PL Higher Than Anticipated
That is, even in an economy producing its potential output, there is some unemployed labor & unused production capacity.
Potential GDP can be thought of
as the economy’s normal capacity.
Firms and workers are able, in the short run, to push output beyond the economy’s potential.
*In the LR, the level of RGDP supplied is independent of PL.
*In the SR, the level of RGDP supplied is dependent of PL.
LRAS
SRAS
AD1
PL2(106)
AD3
AD2
PL1(103)
PL3(100) YR YA 9%
Y*F YP 6% Yi YA 3%

20. CIG-X Y3 Y Y2 Shifts in the AD Curve AD2 AD1 AD3 PL SRAS Price Level
AQD
AQD
Shortage
Surplus
Raise PL Y3 Y Y2
Real Domestic Output 18 18 18

21. Macro Law of Supply ["Law of AS"]
“AS” refers to the “whole AS curve” & refers to “all price levels”
“AQS” refers to a “point on the AS curve” & refers to a “particular price level” AS
Change in “AQS”
1. Price Level change
2. Movement (up/down) “AS” curve)
3. Point to point (along “AS” curve)
PL2
PL1
AQS1
AQS2
Reasons For Upsloping “AS” Curve
1. There is increasing opportunity cost if firms don’t produce.
2. Current producers produce more [overtime/more shifts]
3. New producers are attracted to the market.

22. REP Change in AS PL AS3 AS1 AS2 So – AS Shifters are Environment AQS3
1. “Non price level change”. Either R, E, or P
2. “Whole AS curve” shifts.
3. AQS changes but is not caused by a change in PL
Anything that lowers
the cost of production
will shift AS right.
AS Shifters(REP)
1. Resource cost
2. Environment [legal-institutional
environment for businesses change,
affecting production costs
[subsidies, bus. taxes, regulations]
3. Productivity
AS3
AS1
AS2
So – AS Shifters are
REP
Increase in the availability of Resources PL
You save money. We don’t require dental or medical insurance. You don’t have to pay us a pension and we don’t take sick days. And – we can dance.
1. Lower business taxes
2. Decrease in regulations
Increase in subsidies
Environment
[Legal-institutional]
AQS3
AQS1
AQS2
Increase in Productivity

23. [Recessionary Gap, Inflationary Gap, or no gap]
AD/AS
[Recessionary Gap, Inflationary Gap, or no gap]
LRAS
SRAS
AD1
110
AD3
103
AD2
101
Recess
Gap
Inflat
Gap 1% YI YA
$11
11% YR YA $9 6% Y* YP
$10
[5%(“real”) cyclical unemployment]
10% (5x2%=10%) Recess. GDP Gap
[10%(5x2%) Inflationary GDP Gap
SR – output [product] prices increase/decrease but input
[wages] prices remain fixed in the presence of
unanticipated inflation/disinflation [“sticky”]
LR – both output [product] and input [wages] prices change.

24. Change in AS [caused by “REP”] PL Resource Cost
Decrease in AS [“REP”]
Resource Cost
1. Increase in resource cost
Environment [legal-institutional]
2. Decrease in subsidies
3. Increase in bus. regulations
4. Increase in business taxes
Productivity
5. Decrease in productivity AD
SRAS3
SRAS1
LRAS
SRAS2 PL
Increase in AS [“REP”]
Resource Cost
1. Decrease in resource price
Environment [legal-inst.]
2. Increase in subsidies
3. Decrease in bus. regs.
4. Decrease in bus. taxes
Productivity
5. Increase in productivity
Regulations place compliance costs on businesses and reduce the SRAS.
Ex: To reduce sulfur dioxide emissions, factories have to pay for smokestack scrubbers which mean less money to increase output.
RGDP
Real Domestic Output, RGDP

25. Decrease in the AS Curve
SRAS2 AD
SRAS1
PL2
Shortage
PL1 Y2 Y1
Real GDP

26. Increase in the AS CurveAD
SRAS1
SRAS2
PL1
Surplus
PL2
Increase in
Productivity Y2 Y2
Real GDP
A 1% increase in productivity can eliminate 1.2 million jobs.

27. Increase in AD & the LRAS Curve
Price
Level
SRAS
[Production cost] AD
AD2
PL2[106] E2
What if we have
unanticipated inflation?
What happens in SR to
output, employment,
and price level?
PL1[103] Y YI
RGDP 22 22 22

28. The LRAS Curve LRAS SRAS2 AD SRAS1 Price Level Y AD2 PL2[106] PL1[103]
[Production cost] E3
PL1[103]
With unanticipated inflation
what happens to output,
employment and price level
in the LR? Y
RGDP
There is a Short Run Equilibrium [AD=SRAS]
and a Long Run Equilibrium [AD = LRAS]. 22 22 22

29. Decrease in AD and the LRAS Curve
Price
Level
AD1
SRAS
[Production cost]
With unanticipated
disinflation, what happens
to output, employment,
and price level in the SR?
AD2
PL1[103]
PL3[101] E2 YR Y
RGDP 22 22 22

30. The Long-Run AS Curve LRAS AD SRAS1 SRAS2 Y PL1[103] PL3[101] RGDP
[Production cost]
SRAS2
With unanticipated
disinflation, what happens
to output, employment,
and price level in the LR?
PL1[103]
PL3[101] E3 Y
RGDP 22 22 22

31. slopes upward because of sticky-wages and sticky-prices.
The Long-Run AS Curve
LRAS AD
SRAS
The LRAS curve is not
influenced by PL.
103 PL
The SRAS curve is
influenced by PL and
slopes upward because of sticky-wages and sticky-prices. Y*
Quantity of Output
Output at
Full Employment 23 23 23

32. Decrease in AD LRAS SRAS AD1 AD2 PLe Ye YR Price Level
Surplus
PL2 Ye YR
Quantity of Output 43 43 43

33. [Stagflation] Decrease in AS YF YR LRAS SRAS2 AD SRAS1 6% Price Level
110
Ple[103]
This created cognitive
dissonance among many. 6% YF
RDO
10% YR 47 47 47

34. Point to Point movements
NS 1-4
1. The process of combining all individual product prices and quantities into a single unit is (deduction/conglomeration/aggregation). 2. The AD curve shows the amount of (real/nominal) domestic output which will be purchased at each possible (price/price level). 3. The AD curve is always (up/down) sloping & shows a(an) (direct/inverse) relationship between output & (price/price level). 4. The income & substitution effects (do/do not) apply to the AD curve. The 3 explanations for the downsloping AD curve are the interest rate effect, foreign purchase effect, & (econ/real-balances) effect.
Change in AQD
Price Level Change
Point to Point movements AD
PL1
PL2
AQD PL
AQD1
AQD2

35. Three Reasons For Downward Sloping AD Curve
Real Wealth [Money-balances] Effect –
economy’s monetary wealth. If we buy
a fixed bundle of goods & services every month (food/clothing/ shelter), at lower
prices, it now takes less money.
money. Our accumulated savings
balances [401k, CDs, bonds] will
purchase more.
Three Reasons For Downward Sloping AD Curve
PL1
PL2
QD1 QD2
Market Basket
Interest Rate Effect – lower interest rates
increase investment and consumption.
Foreign Purchase Effect – with
lower U.S. prices, both Americans &
foreigners buy more American goods.

36. NS 5-7 AD Higher PL Lower PL
5. The interest rate effect suggests that an increase in the PL
will (incr/decr) the demand for money, (incr/decr) interest
rates and (increase/decrease) consumption and investment
which would cause a(an) (increase/decrease) in (AD/AQD).
6. The real-balances effect indicates a higher price level will
(increase/decrease) the real value of money, (increase/decrease)
consumption, and therefore (increase/decrease) (AD/AQD).
7. The foreign purchase effect suggests that an increase in PL
relative to other countries (increase/decrease) our exports and
(incr/decr) our imports which would (incr/decr) (AD/AQD). AD
PL2
PL1
Higher PL
Lower PL
AQD AQD1

37. Y, Employment, and PL after Correction
SRAS2
SRAS
LRAS
SRAS3
AD1
110
AD3
AD2
103
101
Recess
Gap
Inflat
Gap
11% YR YA $9 1% YI YA
$11
[5%(“real”) cyclical unemployment]
10% (5x2%=10%) Recess. GDP Gap 6% Y* YP
$10
[10%(5x2%) Inflationary GDP Gap
Input prices have responded to unanticipated changes in output
prices in LR. [They respond to unanticipated inflation or disinflation.
Two sets of prices are changing in LR - output and input.

38. What Will Shift The AD Curve Right?
[C+Ig+G+Xn]
Consumer Spending Increases
1. Aggregate wealth increases independent of PL
[stocks, bonds, land, houses, etc.]
2. Expectations of surging future inflation
3. Consumer indebtedness is fairly low
4. Consumer taxes are decreased
5. Interest rates are decreased [independent of PL] AS
AD2
AD1 PL
Investment Spending Increases
1. Interest rates are decreased [independent of PL]
2. Positive profit expectations
3. Factory inventories are down
4. *Business taxes are reduced [*will also shift AS] Y1 Y2
100 Bases May
Face Closure
Military base cuts
would start in 2010.
100 of the nation’s
425 bases would be
closed, saving over
$75 billion annually.
Government Spending Increases
Government spending increases on health care,
military bases, infrastructure, etc.
Health care, infrastruc., military
Net Export Spending Increases
1. Foreign incomes increase [will buy more there and here]
2. Dollar depreciates [our exports are cheaper]

39. What Will Shift The AS Curve Right [“REP]?
Resource Cost Decrease (domestic)
Land – new raw materials (oil) are found.
Labor–labor force increases or wages decrease.
Capital stock or entrepreneurial ability increases.
The number of sellers of resources increase.
AS1
AS2 AD
PL1
PL2
Resource Cost Decrease (overseas)
Imported resources decrease in price.
Dollar appreciates [foreign inputs are cheaper].
OPEC nations cheat by producing more oil. Y1 Y2
Environment
[Legal-Institutional Environment for businesses change]
1. Subsidies are increased.
2. Regulations on businesses are decreased.
3. *Business taxes decrease.
Productivity Increases
Technological breakthrough leads to an increase
in productivity [more outputs from same inputs].
*Notice that a decrease in business taxes increases
both AD & AS.

40. REP Change in AS PL Productivity increase AS3 AS1 AS2
1. “Non price level change”. Either R, E, or P
2. “Whole AS curve” shifts.
3. AQS changes but is not caused by a change in PL
Anything that lowers
the cost of production
will shift AS right.
AS Shifters(REP)
1. Resource cost
2. Environment [legal-institutional
environment for businesses change,
affecting production costs.
[subsidies, bus. taxes, regulations]
3. Productivity
AS3
AS1
AS2
So – AS Shifters are
REP
Increase in the availability of Resources PL
You save money. We don’t require dental or medical insurance. You don’t have to pay us a pension and we don’t take sick days. And – we can dance.
1. Lower business taxes
2. Decrease in regulations
Increase in subsidies
Environment
[Legal-institutional]
AQS3
AQS1
AQS2
Productivity increase

41. Increase in AD Increase in AD YR YF [caused by “C+Ig+G+Xn”] SRAS LRAS
1. Increase in Consumption
a. aggregate wealth increases
b. expected increase in inflation
c. positive future income
d. low consumer debt
e. decrease in consumer taxes
f. decrease in interest rates
2. Increase in Investment
a. decrease in interest rates
b. positive profit expectations
c. inventories are low
d. *business taxes are reduced
3. Increase in Government spending
a. on the military
b. on the infrastructure
c. on health care
4. Increase in Net exports [Xn]
A. Dollar depreciates
B. Trade partners incomes rise
SRAS
AD2
LRAS
AD1
Price Level YR YF
Real Domestic Output, GDP

42. Decrease in AD Decrease in AD YR YF [caused by “C+Ig+G+Xn”] SRAS LRAS
1. Decrease in Consumption
a. aggregate wealth decreases
b. expected decrease in inflation
c. negative future income
d. large consumer debt
e. increase in consumer taxes
f. increase in interest rates
2. Decrease in Investment
a. increase in interest rates
b. negative profit expectations
c. excess inventories
d. *business taxes are increased
3. Decrease in Government spending
a. on the military
b. on the infrastructure
c. on health care
4. Decrease in Net exports [Xn]
A. Dollar appreciates
B. Trade partners incomes fall
SRAS
AD1
LRAS
AD2
Price Level YR YF
Real Domestic Output, GDP

43. Increase in AS [caused by “REP”] PL Increase in AS [“REP”] AD
Resource Cost [domestic]
a. More land, labor,
capital & entrepreneurs
b. # of sellers increase
c. Hiring fewer union workers
Resource Cost [overseas]
c. Imported input prices decrease
d. Dollar appreciates
Environment [legal-institutional]
a. Increase in subsidies
b. Decrease in bus. regulations
c. *Decrease in business taxes
Productivity
Increase in productivity AD
AS1
AS2 PL
RGDP

44. Decrease in AS [caused by “REP”] PL Decrease in AS [“REP”]
Resource Cost [domestic]
a. Land, labor, & capital
become more scarce
b. Hiring more union workers
c. Number of sellers decrease
Resource Cost [overseas]
c. Imported input prices increase
d. Dollar depreciates
Environment [legal-institutional]
a. Decrease in subsidies
b. Increase in bus. regulations
c. *Increase in business taxes
Productivity
Decrease in productivity AD
AS3
AS1 PL
RGDP

45. NS 33-42 2 2 2 2
[“REP”] D
___33. Decrease in the availability of key natural resources (R)?
___34. Increase in resource productivity (P)?
___35. Increase in foreign spending on our products (Xn)?
___36. Substantial reduction in government spending (G)?
___37. Declines in the prices of imported resources (R)?
___38. Declines in the incomes of our trading partners (Xn)?
___39. Improvement in business profit expectations (Ig)?
___40. Stock market plunge affects consumer wealth (C)?
___41. There is an increase in interest rates [stable prices] (C & Ig)?
___42. Consumer indebtedness is very low (C)?
Extra:
___43. Increased government regulations are forced on businesses (E)?
___44. The government increases subsidies to all farmers (E)? C A B C B A B B A D C

46. Points of Emphasis for AD/AS Questions
1. Wages (labor), this is resource cost, so AS shifter.
2. Increase/decrease in union workers hired –
they get paid more – so labor, so AS shifter.
3. Appreciation/depreciation of a currency [either AD or AS]
a. Resource cost is part of REP, so it is AS shifter.
b. Exports are part of C+Ig+G+Xn, so it is AD shifter.
4. Regulations and subsidies [legal-institutional
Environment], part of REP, so they are AS shifters.
5. For all C+Ig+G+Xn, does the situation result in
an increase or decrease in AD & therefore GDP?
6. For REP, think of production costs –
if producers make more money, there is an increase in AS,
if producers make less money – there is a decrease in AS.

47. __1. Consumers fear a widespread depression.
AD/AS Practice Quiz 1
__1. Consumers fear a widespread depression.
__2. Britain and Japan increase their purchases of U.S.
agricultural products.
__3. Our exports are affected by a depreciation of the dollar.
__4. There is a huge increase in government spending
for health care.
__5. Interest rates increase although prices are stable.
__6. 20% increase in the personal income tax.
__7. An increase in labor productivity.
__8. A 15% decrease in nominal wages.
__9. Appreciation of the dollar affects imported resources.
__10. Canada, Mexico, & Japan come out of recession
and buy more American cars.
[“REP”] B A A A B B C C C A

48. [“REP”] AD/AS Practice Quiz 2 B A B A B A C A C D D B C
___1. A widespread fear of depression on the part of consumers.
___2. A large purchase of wheat by Russia, one of our trade partners.
___3. Our exports are affected by an appreciation of the dollar.
___4. A reduction in interest rates although price level remains constant.
___5. A huge cut in government expenditures for health care.
___6. Consumer expectations of a rapid rise in the price level.
___7. The complete disintegration of OPEC, causing oil prices to fall by ½.
___8. A 10% reduction in personal income tax rates.
___9. An increase in labor productivity.
___10. A 12% increase in nominal wages.
___11. Imported resources are affected by a depreciation of the dollar.
___12. A sharp decline in the national incomes of our trading partners.
___13. A decline in the % of the U.S. labor force which is unionized. B A B A B A C A C D D B C

49. AD/AS Quiz 3 A. Incr in AD B. Decr in AD C. Incr in AS D. Decr in AS
[C + Ig + G +Xn] [“REP”]
1. Car producers have new regulations imposed on them
that require pollution devices on the tailpipes to cut pollution.
2. Positive business profit expectations affect investment.
3. A 50% increase in the value of stocks affect consumer spending.
4. The government will start paying health care for the nations
35 million poor.
5. Although the price level is constant, the Fed raises interest rates.
6. Government spending is affected by the closing of 50 military
bases and decreasing Armed Forces personnel by 250,000 men.
7. The dollar appreciates by 20% which affect the price of
imported resources.
8. Congress cuts personal income taxes by 10% which affect
consumer spending.
9. Investment is affected after factory inventories are being
depleted. [“hot economy”]
10. Productivity (over a 6 month period) triples in the economy.
AD/AS Quiz 3
1. D A A A B B C A A C

50. AD/AS Quiz 4 Incr in AD B. Decr in AD C. Incr in AS D. Decr in AS
[C + Ig + G + Xn] [“REP”]
1. Regulations on car producers are suspended that required
pollution devices on all auto tailpipes.
2. Negative business profit expectations affect investment.
3. A 12% increase in wages impact business profits.
4. The government will spend $1 billion on the “High 10” at
Hwy 190 and Central Expressway.
5. Although the price level is constant, the Fed drops interest rates.
6. Government spending is affected by the construction of a
10-lane highway between Washington D. C. and Crawford, Texas.
7. The dollar depreciates by 10% which affect U.S. resource cost.
8. Congress raises personal income taxes by 10% which
affect consumer spending.
9. Investment is affected after the economy goes into a very
bad recession.
10. Canada, Mexico, and Japan buy 50 million more tons of
corn.
AD/AS Quiz 4
1. C B D A A A D B B A

51. AD/AS Quiz 5 A. Incr in AD B. Decr in AD C. Incr in AS D. Decr in AS
[C+Ig+G+Xn] [REP]
Which diagram above portrays:
___1. A decrease in consumer spending?
___2. The impact on net exports caused by increases in the
national incomes of our major trading partners?
___3. A large increase in the price of imported oil which
impact the resource cost of businesses?
___4. A large increase in government spending on our highways.
___5. A substantial increase in wages that businesses pay
their workers?
___6. The effect on investment if there are negative business
profit expectations? [“We are heading into a recession.”]
___7. A decrease in interest rates even though there is no
change in price level?
___8. The government picking up the tuition tab for all of the
nation’s private school students who have made a “90”
or above in high school economics?
___9. A major increase in productivity?
___10. 25% stock market increase over a two month period?
AD/AS Quiz 5
1. B A D A D B A A C A