AP Macroeconomics Page 1 of 7

Assignment: Apply Concepts of Short-Run Equilibrium

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1. The intersection of AS and AD is an equilibrium. This means that, unless there’s an

outside shock to the system, the price level and RGDP will remain at the equilibrium
levels. Further, if the price level is higher or lower than equilibrium there are forces that
will work to bring it back toward equilibrium.

A. If the price level is above the equilibrium price level, how does the
aggregate quantity of goods and services demanded compare to the
aggregate quantity of goods and services supplied at the price level? Is this
a condition of equilibrium? If not, then what mechanism allows the
economy to move toward equilibrium? (6 points)

B. If the price level is below the equilibrium price level, how does the
aggregate quantity of goods and services demanded compare to the
aggregate quantity of goods and services supplied at the price level? Is this
a condition of equilibrium? If not, then what mechanism allows the
economy to move toward equilibrium? (6 points)

_____________
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AP Macroeconomics Page 2 of 7
Assignment: Apply Concepts of Short-Run Equilibrium

User Name:_______________ Instructor: _________________ Date:__________

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2. Governments sometimes try to change government spending or taxes to affect real

output and the price level.

A. If the government wants to use either government spending or taxes paid

by households to increase aggregate demand, how should G change and
how should T change? (4 points)

B. If the government wants to use either government spending or taxes paid

by households to decrease aggregate demand, how should G change and
how should T change? (4 points)

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AP Macroeconomics Page 3 of 7
Assignment: Apply Concepts of Short-Run Equilibrium

User Name:_______________ Instructor: _________________ Date:__________

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3. In the late 1990s, the U.S. economy consistently saw increasing wages and increasing
worker productivity.

A. If wages rise, how does aggregate supply change? (4 points)

B. If productivity rises, how does aggregate supply change? (4 points)

C. Can you determine the net effect of increases in both workers' wages and
workers' productivity? How could you look at the economy and determine
which (if either) of the two effects dominates the other, ceteris paribus? (4
points)

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AP Macroeconomics Page 4 of 7
Assignment: Apply Concepts of Short-Run Equilibrium

User Name:_______________ Instructor: _________________ Date:__________

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4. Use the AS/AD model to describe the effect of each of the following events on the
economy of Snezhanka (a fictitious nation). Beginning with the economy in equilibrium
carefully show the shift involved and the new equilibrium. State whether the P (price
level) and RGDP at the new equilibrium are higher or lower. For each part of this
question, start again at the original equilibrium. What will happen if:

A. Taxes on households are decreased? (3 points)

B. Taxes paid by firms are decreased? (3 points)

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AP Macroeconomics Page 5 of 7
Assignment: Apply Concepts of Short-Run Equilibrium

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C. The value of the national currency, the Snezhankan lev, declines in the
international currency market? (3 points)

D. A revolutionary new machine, the aparat, increases worker productivity? (3

points)

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AP Macroeconomics Page 6 of 7
Assignment: Apply Concepts of Short-Run Equilibrium

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5. Let’s consider the effects of immigration on an economy.

A. Imagine that a large number of people immigrate to a country, but the

government doesn't allow them to work. What effect will this have on the
AS/AD model? Answer with a graph and in words. (6 points)

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AP Macroeconomics Page 7 of 7
Assignment: Apply Concepts of Short-Run Equilibrium

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B. Now begin again and imagine a large number of people immigrate to a

country, but the government requires that they all find jobs. What effect will
this have on the AS/AD model? Answer with a graph and in words. (6 points)

C. How will the effect of immigration on RGDP and P differ if the immigrants
are allowed to work instead of prohibited from working? (4 points)

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