AP Macroeconomics : Graphs
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Example Questions
Example Question #1 : Other Short Run Phillips Curve Graphs
The short-run Phillips curve depicts which of the following relationships?
A tradeoff between employment and inflation
A direct and positive relationship between unemployment and inflation
A direct and positive relationship between employment and the real interest rate
A tradeoff between unemployment and inflation
A tradeoff between unemployment and inflation
The short-run Phillips curve indicates an inverse relationship between inflation and unemployment. According to the short-run Phillips curve, as unemployment goes up, inflation goes down, and as inflation goes up, unemployment goes down.
The correct answer is therefore "A tradeoff between unemployment and inflation." Recall that a tradeoff refers to an inverse relationship.
The other answer choices are all distortions of the predictions of the short-run Phillips curve.
Example Question #1 : Graphs
Which of the following is the best definition of the concept behind the Phillips Curve?
The relationship between government spending and the multiplier effect
The relationship between unemployment and inflation
The relationship between net exports and GDP
The relationship between worker pay and productivity.
The relationship between unemployment and inflation
The Phillips Curve is meant to express the short-run tradeoff between inflation and unemployment.
Example Question #1 : Long Run Aggregate Supply Curve
The long-run aggregate supply curve is likely to shift to the right when which of the following occurs?
A decrease in interest rates due to action by the Federal Reserve
A higher than estimated multipler effect
An increase in government spending due to government stimulus
An increase in worker productivity due to technological innovation
An increase in worker productivity due to technological innovation
An increase in worker productivity will result in the supply curve shifting, because it results in the economy having more potential output.
Example Question #2 : Graphs
A rightward shift of the aggregate demand curve will necessarily result in which of the following?
An increase in output and a decrease in price level
An increase in output and an increase in the price level
A decrease in output and an increase in price level
A decrease in output and a decrease in the price level
An increase in output and an increase in the price level
A rightward shift of the demand curve (i.e. an increase of the demand curve) causes price and quantity to increase.
Since the aggregate demand/aggregate supply (AD/AS) model represents price as price level and quantity as output, a rightward shift of the aggregate demand curve results in an increase in the price level and an increase in output.
If you selected "A decrease in output and a decrease in the price level" you may have found the effects after a leftward, rather than rightward, shift of the aggregate demand curve.
Answer choices "An increase in output and a decrease in price level" and "A decrease in output and an increase in price level" are incorrect because shifts in demand cause both price and output to rise simultaneously or fall simultaneously, but never cause price to rise and quantity to fall or price to fall and quantity to rise.
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