AP Macroeconomics : Graphs

Study concepts, example questions & explanations for AP Macroeconomics

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Example Questions

Example Question #1 : Graphs

The short-run Phillips curve depicts which of the following relationships?

Possible Answers:

A tradeoff between employment and inflation

A direct and positive relationship between employment and the real interest rate

A direct and positive relationship between unemployment and inflation

A tradeoff between unemployment and inflation

Correct answer:

A tradeoff between unemployment and inflation

Explanation:

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 #2 : Graphs

Which of the following is the best definition of the concept behind the Phillips Curve?

Possible Answers:

The relationship between unemployment and inflation

The relationship between worker pay and productivity.

The relationship between net exports and GDP

The relationship between government spending and the multiplier effect

Correct answer:

The relationship between unemployment and inflation

Explanation:

The Phillips Curve is meant to express the short-run tradeoff between inflation and unemployment.

Example Question #3 : Graphs

The long-run aggregate supply curve is likely to shift to the right when which of the following occurs?

Possible Answers:

An increase in government spending due to government stimulus

An increase in worker productivity due to technological innovation

A higher than estimated multipler effect

A decrease in interest rates due to action by the Federal Reserve

Correct answer:

An increase in worker productivity due to technological innovation

Explanation:

An increase in worker productivity will result in the supply curve shifting, because it results in the economy having more potential output.

Example Question #1 : Long Run Aggregate Demand Curve

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

Possible Answers:

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 a decrease in 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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