Long-Run Self-Adjustment - AP Macroeconomics
Card 1 of 30
What happens to unemployment in the long run after an inflationary gap?
What happens to unemployment in the long run after an inflationary gap?
Tap to reveal answer
Unemployment returns to natural rate. Higher costs reduce employment back to the natural rate.
Unemployment returns to natural rate. Higher costs reduce employment back to the natural rate.
← Didn't Know|Knew It →
What shifts the aggregate supply curve in the long-run self-adjustment process?
What shifts the aggregate supply curve in the long-run self-adjustment process?
Tap to reveal answer
Changes in resource prices and expectations. These factors shift SRAS to eliminate gaps between actual and potential GDP.
Changes in resource prices and expectations. These factors shift SRAS to eliminate gaps between actual and potential GDP.
← Didn't Know|Knew It →
What is the effect of a decrease in aggregate demand on long-run equilibrium?
What is the effect of a decrease in aggregate demand on long-run equilibrium?
Tap to reveal answer
Price level decreases; output unchanged. Lower prices restore equilibrium without affecting long-run output.
Price level decreases; output unchanged. Lower prices restore equilibrium without affecting long-run output.
← Didn't Know|Knew It →
Identify the impact of technological advancements on long-run self-adjustment.
Identify the impact of technological advancements on long-run self-adjustment.
Tap to reveal answer
Shift long-run aggregate supply rightward. Technology increases productive capacity, expanding potential GDP.
Shift long-run aggregate supply rightward. Technology increases productive capacity, expanding potential GDP.
← Didn't Know|Knew It →
How does long-run self-adjustment address overemployment?
How does long-run self-adjustment address overemployment?
Tap to reveal answer
Increases in wages reduce labor demand. Higher wages from tight labor market reduce employment to natural rate.
Increases in wages reduce labor demand. Higher wages from tight labor market reduce employment to natural rate.
← Didn't Know|Knew It →
What happens to the price level in the long run if aggregate demand increases?
What happens to the price level in the long run if aggregate demand increases?
Tap to reveal answer
Price level rises. Higher demand creates inflation but output returns to potential GDP.
Price level rises. Higher demand creates inflation but output returns to potential GDP.
← Didn't Know|Knew It →
If aggregate demand decreases, what long-run adjustment occurs?
If aggregate demand decreases, what long-run adjustment occurs?
Tap to reveal answer
Prices fall, increasing aggregate supply. Lower production costs shift SRAS right to restore equilibrium output.
Prices fall, increasing aggregate supply. Lower production costs shift SRAS right to restore equilibrium output.
← Didn't Know|Knew It →
In long-run self-adjustment, how does the economy respond to inflation?
In long-run self-adjustment, how does the economy respond to inflation?
Tap to reveal answer
Aggregate supply decreases. Higher wages increase costs, shifting aggregate supply left to reduce output.
Aggregate supply decreases. Higher wages increase costs, shifting aggregate supply left to reduce output.
← Didn't Know|Knew It →
What is the classical view on government intervention in long-run adjustments?
What is the classical view on government intervention in long-run adjustments?
Tap to reveal answer
It is unnecessary for achieving full employment. Classical theory assumes markets self-correct efficiently through price flexibility.
It is unnecessary for achieving full employment. Classical theory assumes markets self-correct efficiently through price flexibility.
← Didn't Know|Knew It →
How does long-run self-adjustment affect inflationary expectations?
How does long-run self-adjustment affect inflationary expectations?
Tap to reveal answer
Adjusts expectations to align with actual inflation. Adjustment process corrects expectation errors over time.
Adjusts expectations to align with actual inflation. Adjustment process corrects expectation errors over time.
← Didn't Know|Knew It →
How do expectations of future prices affect long-run self-adjustment?
How do expectations of future prices affect long-run self-adjustment?
Tap to reveal answer
They influence wage and price adjustments. Expected price changes affect wage negotiations and production costs.
They influence wage and price adjustments. Expected price changes affect wage negotiations and production costs.
← Didn't Know|Knew It →
What is the long-run self-adjustment mechanism in economics?
What is the long-run self-adjustment mechanism in economics?
Tap to reveal answer
A process where the economy returns to full employment output. Happens when wages and prices adjust to bring output back to potential GDP.
A process where the economy returns to full employment output. Happens when wages and prices adjust to bring output back to potential GDP.
← Didn't Know|Knew It →
Identify the primary factor that adjusts in the long run to reach equilibrium.
Identify the primary factor that adjusts in the long run to reach equilibrium.
Tap to reveal answer
Price level. Changes in price level allow the economy to move toward long-run equilibrium.
Price level. Changes in price level allow the economy to move toward long-run equilibrium.
← Didn't Know|Knew It →
What happens to wages in the long run if the economy is in a recession?
What happens to wages in the long run if the economy is in a recession?
Tap to reveal answer
Wages decrease. Lower wages reduce costs, shifting aggregate supply right toward full employment.
Wages decrease. Lower wages reduce costs, shifting aggregate supply right toward full employment.
← Didn't Know|Knew It →
What role do flexible prices play in long-run self-adjustment?
What role do flexible prices play in long-run self-adjustment?
Tap to reveal answer
They help restore full employment equilibrium. Prices adjust to eliminate output gaps and restore potential GDP.
They help restore full employment equilibrium. Prices adjust to eliminate output gaps and restore potential GDP.
← Didn't Know|Knew It →
Which curve shifts due to long-run self-adjustment in response to a recession?
Which curve shifts due to long-run self-adjustment in response to a recession?
Tap to reveal answer
Aggregate supply curve shifts right. Lower wages reduce production costs, increasing short-run aggregate supply.
Aggregate supply curve shifts right. Lower wages reduce production costs, increasing short-run aggregate supply.
← Didn't Know|Knew It →
State the result of the long-run self-adjustment on output.
State the result of the long-run self-adjustment on output.
Tap to reveal answer
Output returns to potential GDP. Self-adjustment eliminates output gaps by returning to natural level of output.
Output returns to potential GDP. Self-adjustment eliminates output gaps by returning to natural level of output.
← Didn't Know|Knew It →
What is the relationship between short-run and long-run aggregate supply?
What is the relationship between short-run and long-run aggregate supply?
Tap to reveal answer
Long-run is vertical; short-run is upward sloping. LRAS is vertical at potential GDP; SRAS slopes upward due to sticky prices.
Long-run is vertical; short-run is upward sloping. LRAS is vertical at potential GDP; SRAS slopes upward due to sticky prices.
← Didn't Know|Knew It →
How does the self-correction mechanism adjust the economy in the long run?
How does the self-correction mechanism adjust the economy in the long run?
Tap to reveal answer
By adjusting wages and prices. Price flexibility allows economy to return to full employment equilibrium.
By adjusting wages and prices. Price flexibility allows economy to return to full employment equilibrium.
← Didn't Know|Knew It →
How does long-run self-adjustment impact potential GDP?
How does long-run self-adjustment impact potential GDP?
Tap to reveal answer
Potential GDP remains unchanged. Self-adjustment only affects actual GDP, not productive capacity.
Potential GDP remains unchanged. Self-adjustment only affects actual GDP, not productive capacity.
← Didn't Know|Knew It →
What happens to the economy if wages are perfectly flexible?
What happens to the economy if wages are perfectly flexible?
Tap to reveal answer
Quick adjustment to full employment. No wage rigidity allows immediate return to natural employment rate.
Quick adjustment to full employment. No wage rigidity allows immediate return to natural employment rate.
← Didn't Know|Knew It →
How does long-run self-adjustment affect the aggregate demand curve?
How does long-run self-adjustment affect the aggregate demand curve?
Tap to reveal answer
It does not affect aggregate demand directly. Self-adjustment works through supply shifts, not demand changes.
It does not affect aggregate demand directly. Self-adjustment works through supply shifts, not demand changes.
← Didn't Know|Knew It →
Find the result of long-run self-adjustment on real GDP after a demand shock.
Find the result of long-run self-adjustment on real GDP after a demand shock.
Tap to reveal answer
Real GDP returns to potential output. Supply adjustments restore equilibrium at potential GDP level.
Real GDP returns to potential output. Supply adjustments restore equilibrium at potential GDP level.
← Didn't Know|Knew It →
What is the consequence of price stickiness on long-run self-adjustment?
What is the consequence of price stickiness on long-run self-adjustment?
Tap to reveal answer
Delays return to full employment output. Rigid prices prevent quick adjustment to eliminate output gaps.
Delays return to full employment output. Rigid prices prevent quick adjustment to eliminate output gaps.
← Didn't Know|Knew It →
Find the adjustment needed if the actual GDP is below potential GDP.
Find the adjustment needed if the actual GDP is below potential GDP.
Tap to reveal answer
Increase aggregate supply. Lower wages and costs will shift SRAS right toward potential GDP.
Increase aggregate supply. Lower wages and costs will shift SRAS right toward potential GDP.
← Didn't Know|Knew It →
What is the role of sticky wages in delaying long-run self-adjustment?
What is the role of sticky wages in delaying long-run self-adjustment?
Tap to reveal answer
They slow down wage adjustments to equilibrium. Rigid wages prevent quick price adjustments needed for equilibrium.
They slow down wage adjustments to equilibrium. Rigid wages prevent quick price adjustments needed for equilibrium.
← Didn't Know|Knew It →
Identify a factor that can shift the long-run aggregate supply curve.
Identify a factor that can shift the long-run aggregate supply curve.
Tap to reveal answer
Changes in technology. Technology permanently increases economy's productive capacity.
Changes in technology. Technology permanently increases economy's productive capacity.
← Didn't Know|Knew It →
What is the expected long-run adjustment if an economy is overheated?
What is the expected long-run adjustment if an economy is overheated?
Tap to reveal answer
Aggregate supply shifts left. High demand creates inflation, raising costs and reducing supply.
Aggregate supply shifts left. High demand creates inflation, raising costs and reducing supply.
← Didn't Know|Knew It →
What is the role of labor market flexibility in long-run self-adjustment?
What is the role of labor market flexibility in long-run self-adjustment?
Tap to reveal answer
Facilitates wage adjustments to full employment. Flexible wages enable quick adjustment to employment equilibrium.
Facilitates wage adjustments to full employment. Flexible wages enable quick adjustment to employment equilibrium.
← Didn't Know|Knew It →
What is the long-run effect of a positive supply shock?
What is the long-run effect of a positive supply shock?
Tap to reveal answer
Lower prices with potential GDP unchanged. Increased supply capacity reduces prices while maintaining full employment.
Lower prices with potential GDP unchanged. Increased supply capacity reduces prices while maintaining full employment.
← Didn't Know|Knew It →