This worksheet is really a giant, graphical matching problem. Below are 6 differ

Question

This worksheet is really a giant, graphical matching problem. Below are 6 different graphs, labeled Graph A through Graph F, of the AD-AS model. The black lines represent the original condition of the economy. The curves are labeled 1, 2, and 3 instead of AD, SRAS, and LRAS. You should be able to identify which curve is which by its shape and location. Notice that it is not at a full-employment equilibrium. The black lines are the same in all 6 Each of the 6 different graphs also shows a fourth curve in color (blue, green, or red) that represents a shift in one of the major curves. The shifted curve is shown as either 1*, 2", or 3", and the shift is further emphasized by arrows indicating the direction of the shift.

Explanation / Answer

1. Graph B is correct

Increase in short run aggregate supply leads to rightward shift in short run aggregate supply.

2. Graph C

Decrease in aggregate demand leads to leftward shift in aggregate demand curve.

3. Graph D

Increase in demand for goods and services leads to rightward shift in aggregate demand curve.

4. Graph E

Vertical line is a long run aggregate supply. Decrease in long run aggregate supply leads to leftward shift in vertical line.

5. Graph B

Increase in willingness to produce in the short run leads to rightward shift in the short run aggregate supply curve.

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