Lab
AD and AS Lab
The vertical line is long-run aggregate supply at full-employment output. Shift aggregate demand or short-run aggregate supply and say which way output and the price level will move before you look. Then switch to the long run to see how wages and prices close the gap with no policy.
Challenges
- Shift aggregate demand right. Which way do real output and the price level move in the short run, and what kind of output gap opens?
- Start from no shifts and move short-run aggregate supply left. Why do output and the price level move in opposite directions this time?
- Make a recessionary gap, then switch to the long run. Which curve moves, which way, and why does the price level end up lower?
- Find two different shifts that both leave the economy at full employment in the short run.
- Move full-employment output to the right. What does that shift of LRAS stand for, and what happens to the output gap?