AP Macroeconomics Flashcards: Long Run Self Adjustment

What this deck covers

This deck focuses on Long Run Self Adjustment, giving you a quick way to review the definitions, rules, and examples that matter most for AP Macroeconomics.

How to use these flashcards

Work through these flashcards in short sessions. Try to answer each prompt before flipping the card, then revisit any cards you miss until the explanation feels automatic.

Flashcard 1: What role do flexible prices play in long-run self-adjustment?

Answer: They help restore full employment equilibrium. Prices adjust to eliminate output gaps and restore potential GDP.

Flashcard 2: What happens to the economy if wages are perfectly flexible?

Answer: Quick adjustment to full employment. No wage rigidity allows immediate return to natural employment rate.

Flashcard 3: How does long-run self-adjustment address overemployment?

Answer: Increases in wages reduce labor demand. Higher wages from tight labor market reduce employment to natural rate.

Flashcard 4: How do expectations of future prices affect long-run self-adjustment?

Answer: They influence wage and price adjustments. Expected price changes affect wage negotiations and production costs.

Flashcard 5: What shifts the aggregate supply curve in the long-run self-adjustment process?

Answer: Changes in resource prices and expectations. These factors shift SRAS to eliminate gaps between actual and potential GDP.

Flashcard 6: What happens to unemployment in the long run after an inflationary gap?

Answer: Unemployment returns to natural rate. Higher costs reduce employment back to the natural rate.

Flashcard 7: What is the implication of a vertical long-run aggregate supply curve?

Answer: Output is not affected by price changes. Long-run output depends only on resources, not price level.

Flashcard 8: How does long-run self-adjustment affect inflationary expectations?

Answer: Adjusts expectations to align with actual inflation. Adjustment process corrects expectation errors over time.

Flashcard 9: How does the self-correction mechanism adjust the economy in the long run?

Answer: By adjusting wages and prices. Price flexibility allows economy to return to full employment equilibrium.

Flashcard 10: What is the effect of a decrease in aggregate demand on long-run equilibrium?

Answer: Price level decreases; output unchanged. Lower prices restore equilibrium without affecting long-run output.

Flashcard 11: What is the Keynesian perspective on long-run self-adjustment?

Answer: It may be slow or ineffective without intervention. Keynes argued sticky wages prevent quick adjustment to full employment.

Flashcard 12: Identify the effect of improved productivity on long-run adjustment.

Answer: Shifts long-run aggregate supply right. Higher productivity expands economy's potential output capacity.

Flashcard 13: What shifts the aggregate supply curve in the long-run self-adjustment process?

Answer: Changes in resource prices and expectations. These factors shift SRAS to eliminate gaps between actual and potential GDP.

Flashcard 14: What is the consequence of price stickiness on long-run self-adjustment?

Answer: Delays return to full employment output. Rigid prices prevent quick adjustment to eliminate output gaps.

Flashcard 15: What happens to wages in the long run if the economy is in a recession?

Answer: Wages decrease. Lower wages reduce costs, shifting aggregate supply right toward full employment.

Flashcard 16: State the result of the long-run self-adjustment on output.

Answer: Output returns to potential GDP. Self-adjustment eliminates output gaps by returning to natural level of output.

Flashcard 17: What is the classical view on government intervention in long-run adjustments?

Answer: It is unnecessary for achieving full employment. Classical theory assumes markets self-correct efficiently through price flexibility.

Flashcard 18: What is the long-run effect of a supply-side policy on the economy?

Answer: Increases potential output. Expands productive capacity by improving technology or resources.

Flashcard 19: What happens to wages in the long run if the economy is in a recession?

Answer: Wages decrease. Lower wages reduce costs, shifting aggregate supply right toward full employment.

Flashcard 20: What is the role of sticky wages in delaying long-run self-adjustment?

Answer: They slow down wage adjustments to equilibrium. Rigid wages prevent quick price adjustments needed for equilibrium.

Flashcard 21: How does long-run self-adjustment impact potential GDP?

Answer: Potential GDP remains unchanged. Self-adjustment only affects actual GDP, not productive capacity.

Flashcard 22: What is the effect of a decrease in aggregate demand on long-run equilibrium?

Answer: Price level decreases; output unchanged. Lower prices restore equilibrium without affecting long-run output.

Flashcard 23: If wages are slow to adjust downward, what is the impact on long-run adjustment?

Answer: Adjustment to full employment is delayed. Sticky wages prevent quick cost reductions needed for supply adjustment.

Flashcard 24: If aggregate demand decreases, what long-run adjustment occurs?

Answer: Prices fall, increasing aggregate supply. Lower production costs shift SRAS right to restore equilibrium output.

Flashcard 25: Identify the primary factor that adjusts in the long run to reach equilibrium.

Answer: Price level. Changes in price level allow the economy to move toward long-run equilibrium.

Flashcard 26: If aggregate demand decreases, what long-run adjustment occurs?

Answer: Prices fall, increasing aggregate supply. Lower production costs shift SRAS right to restore equilibrium output.

Flashcard 27: Identify the impact of technological advancements on long-run self-adjustment.

Answer: Shift long-run aggregate supply rightward. Technology increases productive capacity, expanding potential GDP.

Flashcard 28: What is the relationship between short-run and long-run aggregate supply?

Answer: Long-run is vertical; short-run is upward sloping. LRAS is vertical at potential GDP; SRAS slopes upward due to sticky prices.

Flashcard 29: What role do flexible prices play in long-run self-adjustment?

Answer: They help restore full employment equilibrium. Prices adjust to eliminate output gaps and restore potential GDP.

Flashcard 30: What is the relationship between short-run and long-run aggregate supply?

Answer: Long-run is vertical; short-run is upward sloping. LRAS is vertical at potential GDP; SRAS slopes upward due to sticky prices.

Flashcard 31: What happens to the price level in the long run if aggregate demand increases?

Answer: Price level rises. Higher demand creates inflation but output returns to potential GDP.

Flashcard 32: What is the role of labor market flexibility in long-run self-adjustment?

Answer: Facilitates wage adjustments to full employment. Flexible wages enable quick adjustment to employment equilibrium.

Flashcard 33: How does long-run self-adjustment affect inflationary expectations?

Answer: Adjusts expectations to align with actual inflation. Adjustment process corrects expectation errors over time.

Flashcard 34: Find the result of long-run self-adjustment on real GDP after a demand shock.

Answer: Real GDP returns to potential output. Supply adjustments restore equilibrium at potential GDP level.

Flashcard 35: What is the effect of long-run self-adjustment on unemployment?

Answer: Unemployment returns to the natural rate. Wage adjustments restore equilibrium employment at the natural rate.

Flashcard 36: What is the long-run impact of a negative demand shock?

Answer: Output remains at potential GDP with lower prices. Self-adjustment restores potential GDP through lower price level.

Flashcard 37: How does the self-correction mechanism adjust the economy in the long run?

Answer: By adjusting wages and prices. Price flexibility allows economy to return to full employment equilibrium.

Flashcard 38: Which curve shifts due to long-run self-adjustment in response to a recession?

Answer: Aggregate supply curve shifts right. Lower wages reduce production costs, increasing short-run aggregate supply.

Flashcard 39: What is the long-run self-adjustment mechanism in economics?

Answer: A process where the economy returns to full employment output. Happens when wages and prices adjust to bring output back to potential GDP.

Flashcard 40: Which curve shifts due to long-run self-adjustment in response to a recession?

Answer: Aggregate supply curve shifts right. Lower wages reduce production costs, increasing short-run aggregate supply.

Flashcard 41: What is the classical view on government intervention in long-run adjustments?

Answer: It is unnecessary for achieving full employment. Classical theory assumes markets self-correct efficiently through price flexibility.

Flashcard 42: What is the Keynesian perspective on long-run self-adjustment?

Answer: It may be slow or ineffective without intervention. Keynes argued sticky wages prevent quick adjustment to full employment.

Flashcard 43: Identify a factor that can shift the long-run aggregate supply curve.

Answer: Changes in technology. Technology permanently increases economy's productive capacity.

Flashcard 44: What happens to the price level in the long run if aggregate demand increases?

Answer: Price level rises. Higher demand creates inflation but output returns to potential GDP.

Flashcard 45: What is the long-run effect of a positive supply shock?

Answer: Lower prices with potential GDP unchanged. Increased supply capacity reduces prices while maintaining full employment.

Flashcard 46: What is the expected long-run adjustment if an economy is overheated?

Answer: Aggregate supply shifts left. High demand creates inflation, raising costs and reducing supply.

Flashcard 47: Find the adjustment needed if the actual GDP is below potential GDP.

Answer: Increase aggregate supply. Lower wages and costs will shift SRAS right toward potential GDP.

Flashcard 48: State the result of the long-run self-adjustment on output.

Answer: Output returns to potential GDP. Self-adjustment eliminates output gaps by returning to natural level of output.

Flashcard 49: Which economic theory emphasizes the long-run self-adjustment mechanism?

Answer: Classical economics. Believes markets naturally adjust to full employment without intervention.

Flashcard 50: How does long-run self-adjustment address overemployment?

Answer: Increases in wages reduce labor demand. Higher wages from tight labor market reduce employment to natural rate.

Flashcard 51: Identify the impact of technological advancements on long-run self-adjustment.

Answer: Shift long-run aggregate supply rightward. Technology increases productive capacity, expanding potential GDP.

Flashcard 52: What is the long-run effect of a supply-side policy on the economy?

Answer: Increases potential output. Expands productive capacity by improving technology or resources.

Flashcard 53: Find the result of long-run self-adjustment on real GDP after a demand shock.

Answer: Real GDP returns to potential output. Supply adjustments restore equilibrium at potential GDP level.

Flashcard 54: Identify the primary factor that adjusts in the long run to reach equilibrium.

Answer: Price level. Changes in price level allow the economy to move toward long-run equilibrium.

Flashcard 55: How does long-run self-adjustment affect the aggregate demand curve?

Answer: It does not affect aggregate demand directly. Self-adjustment works through supply shifts, not demand changes.

Flashcard 56: In long-run self-adjustment, how does the economy respond to inflation?

Answer: Aggregate supply decreases. Higher wages increase costs, shifting aggregate supply left to reduce output.

Flashcard 57: In long-run self-adjustment, how does the economy respond to inflation?

Answer: Aggregate supply decreases. Higher wages increase costs, shifting aggregate supply left to reduce output.