AP Macroeconomics Flashcards: The Aggregate Demand Aggregate Supply Model

What this deck covers

This deck focuses on The Aggregate Demand Aggregate Supply Model, 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 is the impact of an increase in productivity on the AS curve?

Answer: AS curve shifts rightward. Higher productivity reduces per-unit production costs.

Flashcard 2: What happens to the equilibrium level when both AD and AS shift leftward?

Answer: Output decreases; price level change ambiguous. Both demand and supply declining reduces output.

Flashcard 3: What effect does a decrease in interest rates have on AD?

Answer: AD curve shifts rightward. Lower rates encourage borrowing for investment and consumption.

Flashcard 4: Identify the primary cause of cost-push inflation.

Answer: Leftward shift in the AS curve. Rising input costs push prices up from supply side.

Flashcard 5: State the formula for Aggregate Demand (AD).

Answer: AD = C + I + G + (X - M). Sum of consumption, investment, government spending, and net exports.

Flashcard 6: Which policy is used to correct a recessionary gap?

Answer: Expansionary fiscal policy. Increases government spending or cuts taxes to boost AD.

Flashcard 7: In the AD-AS model, what occurs when AD exceeds AS?

Answer: Inflationary gap. Excess demand creates upward pressure on prices.

Flashcard 8: What is the short-run effect of an increase in taxes on AD?

Answer: AD curve shifts leftward. Higher taxes reduce disposable income and consumption.

Flashcard 9: Identify what shifts the Aggregate Demand curve rightward.

Answer: Increase in consumer spending, investment, government spending, or net exports. These components increase total spending in the economy.

Flashcard 10: Which factor causes the AS curve to shift leftward?

Answer: Increase in input prices. Higher costs reduce firms' willingness to supply.

Flashcard 11: What is the effect of a foreign recession on the AD curve?

Answer: AD curve shifts leftward due to decreased exports. Reduced foreign income decreases demand for domestic exports.

Flashcard 12: What effect does an increase in export demand have on AD?

Answer: AD curve shifts rightward. Higher foreign demand increases net exports component.

Flashcard 13: How does a decrease in the labor force affect the AS curve?

Answer: AS curve shifts leftward. Fewer workers reduce economy's production capacity.

Flashcard 14: State the result of an increase in AD when the economy is at full employment.

Answer: Inflation increases. At capacity, higher demand only raises prices.

Flashcard 15: What happens to the equilibrium output when AS shifts left?

Answer: Equilibrium output decreases. Reduced supply decreases production at any price level.

Flashcard 16: Which factor leads to a leftward shift in the AD curve?

Answer: Decrease in consumer confidence. Lower confidence reduces consumption spending.

Flashcard 17: What results from a rightward shift in the AS curve?

Answer: Lower price level and higher output. Increased supply creates downward pressure on prices.

Flashcard 18: Identify the result of a rightward shift in both AD and AS.

Answer: Higher output; price level change ambiguous. Both curves moving right increases output definitively.

Flashcard 19: How does an increase in interest rates affect AD?

Answer: AD curve shifts leftward. Higher rates reduce investment and consumption spending.

Flashcard 20: Which policy can address a demand-pull inflation?

Answer: Contractionary fiscal policy. Reduces government spending or raises taxes to cool demand.

Flashcard 21: In the AD-AS model, what is a demand-pull inflation?

Answer: Inflation caused by a rightward shift in AD. Excess demand pulls prices higher throughout the economy.

Flashcard 22: What effect does a technological advancement have on the AS curve?

Answer: Shifts the Aggregate Supply (AS) curve rightward. Technology reduces production costs, increasing supply.

Flashcard 23: What is the impact of a leftward shift in the AD curve on the price level?

Answer: Price level decreases. Reduced demand creates downward pressure on prices.

Flashcard 24: What does a leftward shift in the long-run AS curve indicate?

Answer: Decrease in potential output. Reduced capacity means lower maximum sustainable output.

Flashcard 25: What is the short-run impact of an increase in consumer spending?

Answer: AD curve shifts rightward. Higher consumption increases total aggregate demand.

Flashcard 26: What is the impact of an increase in productivity on the AS curve?

Answer: AS curve shifts rightward. Higher productivity reduces per-unit production costs.

Flashcard 27: What is the effect of a subsidy on production on the AS curve?

Answer: AS curve shifts rightward. Subsidies reduce production costs for firms.

Flashcard 28: Which factor shifts the long-run AS curve to the right?

Answer: Increase in capital stock. More capital increases economy's productive capacity.

Flashcard 29: What is the equilibrium condition in the AD-AS model?

Answer: Aggregate Demand (AD) = Aggregate Supply (AS). Where quantity demanded equals quantity supplied in the economy.

Flashcard 30: State the impact of improved education on the long-run AS curve.

Answer: Long-run AS curve shifts rightward. Better education increases economy's productive capacity.

Flashcard 31: Which factor leads to a leftward shift in the AD curve?

Answer: Decrease in consumer confidence. Lower confidence reduces consumption spending.

Flashcard 32: What results from a rightward shift in the AS curve?

Answer: Lower price level and higher output. Increased supply creates downward pressure on prices.

Flashcard 33: Identify the effect of a decrease in government spending on AD.

Answer: AD curve shifts leftward. Reduced government spending decreases total demand.

Flashcard 34: State the formula for Aggregate Demand (AD).

Answer: AD = C + I + G + (X - M). Sum of consumption, investment, government spending, and net exports.

Flashcard 35: State the result of an increase in AD when the economy is at full employment.

Answer: Inflation increases. At capacity, higher demand only raises prices.

Flashcard 36: What effect does an increase in export demand have on AD?

Answer: AD curve shifts rightward. Higher foreign demand increases net exports component.

Flashcard 37: What happens to the equilibrium price level if AD shifts right?

Answer: Equilibrium price level increases. Higher demand creates upward pressure on prices.

Flashcard 38: Which policy is used to correct a recessionary gap?

Answer: Expansionary fiscal policy. Increases government spending or cuts taxes to boost AD.

Flashcard 39: What happens to the equilibrium price level if AD shifts right?

Answer: Equilibrium price level increases. Higher demand creates upward pressure on prices.

Flashcard 40: Which option describes a stagflation scenario?

Answer: High inflation and high unemployment. Occurs when AS shifts left while AD remains stable.

Flashcard 41: How does a decrease in the labor force affect the AS curve?

Answer: AS curve shifts leftward. Fewer workers reduce economy's production capacity.

Flashcard 42: Identify the effect of a decrease in AD on unemployment.

Answer: Unemployment increases. Lower demand reduces need for workers.

Flashcard 43: Identify the impact of a decrease in resource prices on AS.

Answer: AS curve shifts rightward. Lower input costs reduce production expenses.

Flashcard 44: Which effect results from a decrease in aggregate demand?

Answer: Lower price level and lower output. Reduced demand decreases both prices and production.

Flashcard 45: Which scenario leads to a deflationary gap?

Answer: AS exceeds AD at full employment. Supply exceeds demand, creating downward price pressure.

Flashcard 46: What results from a simultaneous rightward shift in AD and leftward shift in AS?

Answer: Price level increases; output change ambiguous. Demand increases while supply decreases, raising prices.

Flashcard 47: Identify the effect of increased energy costs on the AS curve.

Answer: AS curve shifts leftward. Higher energy costs increase production expenses.

Flashcard 48: What does the vertical AS curve represent in the long run?

Answer: Full employment or potential output. Maximum sustainable output when all resources are fully utilized.

Flashcard 49: What is the effect of a foreign recession on the AD curve?

Answer: AD curve shifts leftward due to decreased exports. Reduced foreign income decreases demand for domestic exports.

Flashcard 50: Identify the effect of a decrease in AD on unemployment.

Answer: Unemployment increases. Lower demand reduces need for workers.

Flashcard 51: State the impact of improved education on the long-run AS curve.

Answer: Long-run AS curve shifts rightward. Better education increases economy's productive capacity.