Parth Patel
AP Macroeconomics
AP Macroeconomics Final Exam
1.
a.
i.
LR AS
Pric AD AS
e
Leve
l Short-
Run
Equilibriu
m
Long-Run
Equilibrium
RGDP
1. In this scenario, the economy is running on a short-run
disequilibrium with out well bloer the full employment level.
According to the circumstances, this causes the price level to be
well below the equilibrium point which causes the product market
to have shortages. Because of the product market shortages, this
causes the markets to have heightened product prices, which in
turn causes the price level to rise. Afterwards, when the prices
reach up to equilibrium, then the prices will stop rising. But during
this time when the prices are rising to equilibrium other factors do
change like, the aggregate expenditure decrease. On the other
hand, factors like real production and full-employment does not
change, which causes long-run equilibrium.
ii. There are many reasons that supply shock and demand shock affects the
AD/AS model. To begin, changes in the aggregate demand are demand
shocks. A shift to the left for the aggregate demand curve is shown to
exhibit a decrease. From the AD decrease, factors like the price and the
equilibrium Real GDP both decrease. On the other hand, when their is a
increase in aggregate demand, that is shown by a shift to the right of the
AD curve causing the Real GDP and prices to increase with increase in
aggregate demand. When it comes to the aggregate supply curve, factors
like the changes in level will show where the equilibrium happens on the
graph. The AS curve has the effects fro the supply shocks. These supply
shocks has the cost of production to show how it is affected. For example,
when there is a increase in aggregate supply, the AS curve is shifted to
the right and causes a higher equilibrium Real GDP and a lower
equilibrium price level. Oppositely if the AS curve is decreasing, the curve
shifts to left and the factors of price level and equilibrium Real GDP
reciprocate in fashion, causing higher prices and lower Real GDP.
b.
This study source was downloaded by 100000903111493 from CourseHero.com on 01-16-2026 11:01:47 GMT -06:00
https://www.coursehero.com/file/16717399/AP-Macroeconomics-Final-Exam-818/
, i. Unemployment and the price level are affected very substantially when it
comes to the interest rate. When it comes to a high or low interest rate,
people of society usually do things the same way. For instance, when
their is a high interest rate, people begin to save money instead of use it
in the open market to purchase goods and services, causing the spending
of the country to go down. When people save money, the market loses
money and the demand of the goods that are not bought decrease,
causing less profits, price level to decrease, and the unemployment to
decrease because companies cannot hire workers if the production of
goods is not being efficient. On the other side of the coin, when people
see low interest rates, they begin to spend more on the market for goods,
causing greater consumption, creating more money flow in the economy
which is more efficient for the economy. s well, unemployment would
decrease because more production equals more jobs and the price level
will begin to rise because the demand for certain products begin to rise in
the market.
ii. There are several policies that the government uses to control inflation in
the economy. When there is excess inflation in the economy, the
government would use three policies, the contractionary fiscal policy,the
contractionary monetary policy and supply-side economics. To begin, the
contractionary fiscal policy is used to help inflation be consistent and
effective. The contractionary fiscal policy will decrease the aggregate
demand in the economy, thus decreasing inflation. For the fiscal policy,
the government would need to decrease the government spending and
increase the taxes, the government essentially would be taking money
out of circulation. Next, the contractionary monetary policy is used to
control inflation in the country. The monetary policy would make the Fed
decrease the money supply in the economy, which will make the interest
rate decrease and the aggregate demand of the country will begin to slow
down, which would make the inflation come to a normal rate of inflation.
Lastly, supply-side economics would be effective as a controller for
inflation in the economy because in the look of things during the long-run
economy, this policy would help deflate the inflation. Overall, all three of
these policies would change many factors of the economy dramatically.
Some factors like unemployment would increase, price level would
decrease and their would be an increase in the interest rate.
c. Some causes of stagflation would be supply shocks and the role of expansionary
monetary policy. During the expansionary monetary policy, the money supply is
boosted and the supply is tightened and held off. During periods of stagflation,
their is many problems that arise. When an expansionary monetary policy is
active during a period of stagflation, the policy proves to be ineffective because
the inflationary period would be worse and if their was a contractionary monetary
policy in effect, the stagflation would cause the Real GDP to be worse overall.
Periods of stagflation caused monetary policies to be ineffective.
d.
This study source was downloaded by 100000903111493 from CourseHero.com on 01-16-2026 11:01:47 GMT -06:00
https://www.coursehero.com/file/16717399/AP-Macroeconomics-Final-Exam-818/
AP Macroeconomics
AP Macroeconomics Final Exam
1.
a.
i.
LR AS
Pric AD AS
e
Leve
l Short-
Run
Equilibriu
m
Long-Run
Equilibrium
RGDP
1. In this scenario, the economy is running on a short-run
disequilibrium with out well bloer the full employment level.
According to the circumstances, this causes the price level to be
well below the equilibrium point which causes the product market
to have shortages. Because of the product market shortages, this
causes the markets to have heightened product prices, which in
turn causes the price level to rise. Afterwards, when the prices
reach up to equilibrium, then the prices will stop rising. But during
this time when the prices are rising to equilibrium other factors do
change like, the aggregate expenditure decrease. On the other
hand, factors like real production and full-employment does not
change, which causes long-run equilibrium.
ii. There are many reasons that supply shock and demand shock affects the
AD/AS model. To begin, changes in the aggregate demand are demand
shocks. A shift to the left for the aggregate demand curve is shown to
exhibit a decrease. From the AD decrease, factors like the price and the
equilibrium Real GDP both decrease. On the other hand, when their is a
increase in aggregate demand, that is shown by a shift to the right of the
AD curve causing the Real GDP and prices to increase with increase in
aggregate demand. When it comes to the aggregate supply curve, factors
like the changes in level will show where the equilibrium happens on the
graph. The AS curve has the effects fro the supply shocks. These supply
shocks has the cost of production to show how it is affected. For example,
when there is a increase in aggregate supply, the AS curve is shifted to
the right and causes a higher equilibrium Real GDP and a lower
equilibrium price level. Oppositely if the AS curve is decreasing, the curve
shifts to left and the factors of price level and equilibrium Real GDP
reciprocate in fashion, causing higher prices and lower Real GDP.
b.
This study source was downloaded by 100000903111493 from CourseHero.com on 01-16-2026 11:01:47 GMT -06:00
https://www.coursehero.com/file/16717399/AP-Macroeconomics-Final-Exam-818/
, i. Unemployment and the price level are affected very substantially when it
comes to the interest rate. When it comes to a high or low interest rate,
people of society usually do things the same way. For instance, when
their is a high interest rate, people begin to save money instead of use it
in the open market to purchase goods and services, causing the spending
of the country to go down. When people save money, the market loses
money and the demand of the goods that are not bought decrease,
causing less profits, price level to decrease, and the unemployment to
decrease because companies cannot hire workers if the production of
goods is not being efficient. On the other side of the coin, when people
see low interest rates, they begin to spend more on the market for goods,
causing greater consumption, creating more money flow in the economy
which is more efficient for the economy. s well, unemployment would
decrease because more production equals more jobs and the price level
will begin to rise because the demand for certain products begin to rise in
the market.
ii. There are several policies that the government uses to control inflation in
the economy. When there is excess inflation in the economy, the
government would use three policies, the contractionary fiscal policy,the
contractionary monetary policy and supply-side economics. To begin, the
contractionary fiscal policy is used to help inflation be consistent and
effective. The contractionary fiscal policy will decrease the aggregate
demand in the economy, thus decreasing inflation. For the fiscal policy,
the government would need to decrease the government spending and
increase the taxes, the government essentially would be taking money
out of circulation. Next, the contractionary monetary policy is used to
control inflation in the country. The monetary policy would make the Fed
decrease the money supply in the economy, which will make the interest
rate decrease and the aggregate demand of the country will begin to slow
down, which would make the inflation come to a normal rate of inflation.
Lastly, supply-side economics would be effective as a controller for
inflation in the economy because in the look of things during the long-run
economy, this policy would help deflate the inflation. Overall, all three of
these policies would change many factors of the economy dramatically.
Some factors like unemployment would increase, price level would
decrease and their would be an increase in the interest rate.
c. Some causes of stagflation would be supply shocks and the role of expansionary
monetary policy. During the expansionary monetary policy, the money supply is
boosted and the supply is tightened and held off. During periods of stagflation,
their is many problems that arise. When an expansionary monetary policy is
active during a period of stagflation, the policy proves to be ineffective because
the inflationary period would be worse and if their was a contractionary monetary
policy in effect, the stagflation would cause the Real GDP to be worse overall.
Periods of stagflation caused monetary policies to be ineffective.
d.
This study source was downloaded by 100000903111493 from CourseHero.com on 01-16-2026 11:01:47 GMT -06:00
https://www.coursehero.com/file/16717399/AP-Macroeconomics-Final-Exam-818/
