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AD-AS Model: Equilibrium in the Short Run and Long Run quiz

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  • What is the AD-AS model used to determine in the economy?
    The AD-AS model is used to determine the equilibrium price level and real GDP in the economy.
  • Where does long-run equilibrium occur in the AD-AS model?
    Long-run equilibrium occurs where aggregate demand, short-run aggregate supply, and long-run aggregate supply all intersect.
  • What are the axes labeled on the AD-AS model graph?
    The y-axis is labeled as price level, and the x-axis is labeled as real GDP.
  • How is the aggregate demand curve typically shaped in the AD-AS model?
    The aggregate demand curve is downward sloping in the AD-AS model.
  • What is the shape of the short-run aggregate supply curve in the AD-AS model?
    The short-run aggregate supply curve is upward sloping.
  • How is the long-run aggregate supply curve typically drawn in the AD-AS model?
    The long-run aggregate supply curve is drawn as a vertical line.
  • What happens to equilibrium when aggregate demand shifts in the short run?
    When aggregate demand shifts in the short run, the short-run equilibrium changes, resulting in a new intersection with the short-run aggregate supply curve.
  • Is short-run equilibrium always the same as long-run equilibrium?
    No, short-run equilibrium is not necessarily the same as long-run equilibrium; it can differ if AD or SRAS shifts.
  • What determines the short-run equilibrium in the AD-AS model?
    Short-run equilibrium is determined by the intersection of aggregate demand and short-run aggregate supply.
  • What can cause the AD or SRAS curves to shift in the AD-AS model?
    Changes in economic factors such as consumer confidence, input prices, or government policy can cause AD or SRAS to shift.
  • What is the significance of the intersection point of all three curves in the AD-AS model?
    The intersection point of AD, SRAS, and LRAS represents the long-run equilibrium price level and real GDP.
  • How does the AD-AS model illustrate economic fluctuations?
    The AD-AS model shows how shifts in AD or SRAS can lead to changes in price level and real GDP, illustrating economic fluctuations.
  • What is meant by the market-clearing price in the AD-AS model?
    The market-clearing price is the equilibrium price level where aggregate demand equals aggregate supply.
  • Why is it helpful to use different colors when drawing shifted curves in the AD-AS model?
    Using different colors helps distinguish between original and shifted curves, making it easier to analyze changes in equilibrium.
  • What does a shift in aggregate demand or supply indicate in the context of the AD-AS model?
    A shift in aggregate demand or supply indicates a change in economic conditions, leading to a new equilibrium in the short run or long run.