AP Macroeconomics : How to graph long-run aggregate demand curves with aggregate supply and demand graphs

Study concepts, example questions & explanations for AP Macroeconomics

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Example Questions

Example Question #2 : Aggregate Supply And Demand Graphs

A rightward shift of the aggregate demand curve will necessarily result in which of the following?

Possible Answers:

A decrease in output and a decrease in the price level

A decrease in output and an increase in price level

An increase in output and a decrease in price level

An increase in output and an increase in the price level

Correct answer:

An increase in output and an increase in the price level

Explanation:

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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