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AP Macroeconomics Page 1 of 7 Assignment: Apply Concepts of AD/AS User Name:_______________ Instructor: _________________ Date:__________ (print clearly) 1. The first part of the AD / AS model typically discussed is the AD curve, which is downward sloping. A. List and explain three reasons given for why the AD curve is downward sloping. (6 points) B. An economy where these effects (from your answer above) are strong will generally have a flatter AD curve, since changes in the price level will have a large effect on the associated level of RGDP. i. Will the aggregate quantity of goods and services demanded become more sensitive or less sensitive to changes in the price level if an economy becomes closed (that is, as foreign trade disappears)? In terms of the AD / AS diagram, will the AD curve become steeper or flatter? (6 points) _____________ Copyright © 20 2 1 Apex Learning. See Terms of Use for further information.

AP Macroeconomics Page 2 of 7 Assignment: Apply Concepts of AD/AS User Name:_______________ Instructor: _________________ Date:__________ (print clearly) ii. There is an increasing trend of globalization in the world, part of which is manifested in credit and input markets. It could be argued that this will cause interest rates to be determined in international credit markets rather than in national credit markets, and most small, national fluctuations will have no effect. How might this change the relationship between the aggregate quantity of goods and services demanded and the price level in a nation's economy? That is, In terms of the AD / AS diagram, will the AD curve become steeper or flatter? (4 points) iii. Now, consider that many people have become more sophisticated in their financial dealings. Instead of holding cash or assets such as checking or savings deposits (which are basically the same as cash), they keep their wealth in assets whose value will NOT generally change with the price level. How might this change the relationship between the aggregate quantity of goods and services demanded and the price level in an economy? That is, In terms of the AD / AS diagram, will the AD curve become steeper or flatter? (3 points) _____________ Copyright © 20 2 1 Apex Learning. See Terms of Use for further information.

AP Macroeconomics Page 3 of 7 Assignment: Apply Concepts of AD/AS User Name:_______________ Instructor: _________________ Date:__________ (print clearly) 2. Use the AD / AS model to diagram the following events, showing what will happen in the short run and in the long run. Unless otherwise instructed, assume that each economy starts from full employment. Also, state clearly what will happen to output and the price level in the short run and in the long run. A. New laws prohibit a large segment of the labor force from working. (4 points) B. Technological advances allow one worker to do the work of ten. (4 points) _____________ Copyright © 20 2 1 Apex Learning. See Terms of Use for further information.

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AP Macroeconomics Page 4 of 7 Assignment: Apply Concepts of AD/AS User Name:_______________ Instructor: _________________ Date:__________ (print clearly) C. We know that when an economy starts out at long-run equilibrium and the government cuts taxes, this will only result in inflation in the long run. What happens if the economy is producing a level of output below the full- employment (long-run equilibrium) level and the government cuts taxes? (4 points) D. Starting from full employment, what will happen to an economy if the government increases both taxes paid by households and spending by the same large amount (according to AS / AD analysis)? Does this outcome seem realistic in a market economy? (5 points) _____________ Copyright © 20 2 1 Apex Learning. See Terms of Use for further information.

AP Macroeconomics Page 5 of 7 Assignment: Apply Concepts of AD/AS User Name:_______________ Instructor: _________________ Date:__________ (print clearly) 3. The U.S. is currently trying to use its influence in international trade and politics to convince some other countries to change their economies in particular ways. Consider the effect of these U.S. proposals. A. There are a number of countries that use various techniques to keep foreign products out of their markets. The U.S. wants these markets opened to American products. What effect will the opening of these markets have on the countries' economies? Use the AD / AS model to answer the question. Explain your answer. (6 points) B. In many countries, children make up an important part of the labor force, as they did in the U.S. in the nineteenth century. One of the goals of some people in the U.S. and elsewhere is to eliminate child labor around the world. What effect would this have on economies where children are a large part of the labor force? Show this in a diagram and explain your answer. Can you explain why opponents of child labor face such a difficult battle? (6 points) _____________ Copyright © 20 2 1 Apex Learning. See Terms of Use for further information.

AP Macroeconomics Page 6 of 7 Assignment: Apply Concepts of AD/AS User Name:_______________ Instructor: _________________ Date:__________ (print clearly) 4. In 1999, the U.S. output was almost certainly at or above the full-employment level. A. In spite of nearly unanimous agreement about the state of the economy, a large number of presidential candidates campaigned on the platform of major tax cuts. What are the short-run and long-run effects of a tax cut when the economy is at full employment? Illustrate this with a diagram. (3 points) B. During this period, people who monitor the U.S. economy were constantly on the lookout for signs of inflation. Explain why inflation may tend to arise when output is above the full-employment level and what the initial signs might be. (2 points) _____________ Copyright © 20 2 1 Apex Learning. See Terms of Use for further information.

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AP Macroeconomics Page 7 of 7 Assignment: Apply Concepts of AD/AS User Name:_______________ Instructor: _________________ Date:__________ (print clearly) C. Throughout the late 1990s, the U.S. economy was characterized by steady, historically high rates of growth. In the past, such periods of growth have resulted in inflation, but as of the end of 1999 this inflation had not materialized. What must happen in an economy for output to expand in the short run without the price level increasing? (2 points) 5. The AD / AS model is useful in predicting the effects of various shocks and policy changes on an economy. The model is based on goods and services being exchanged in well- functioning markets. In general, however, markets are not always perfect. Consider how the model would change as a result of market imperfections. (Hint: Can the AS/LRAS shift when there are governmental controls?) A. How would the AD / AS model change if input prices, such as wages and raw material prices, were set by the government rather than in markets? (3 points) B. If the government sets input prices, what long-run effect would this have? (2 points) _____________ Copyright © 20 2 1 Apex Learning. See Terms of Use for further information.

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