Question 1

What happens to flexible wages/prices in the long-run with no government interventions after a shock to AD or AS?

Accepted Answer

Flexible wages and prices will adjust to restore full employment, and unemployment will revert to its natural rate

(in the long-run, wages/prices self-adjust),

Question 2

What do shifts to the LRAS curve represent?

Accepted Answer

Changes in the full-employment level of output and economic growth

(rightward shifts mean economic growth, e.g., due to new technology or resources)

Question 3

If consumer spending increases, what will happen in the short- and long-run if there is no government policy action?

Accepted Answer

Price level will increase, but LRAS will not shift unless there is a change in resources/productivity

Question 4

If consumer spending decreases, what will happen in the short- and long-run if there is no government policy action?

Accepted Answer

Price level will decrease, but LRAS will not shift unless there is a change in resources/productivity

Question 5

If investment increases, what happens in the long-run?

Accepted Answer

LRAS shifts to the right

(consumer and govt. spending typically don't cause LRAS to shift, only business investment)

3.7 Long-Run Self Adjustent, AP Macroeconomics Flashcards