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AP Macroeconomics Assignment: Apply The Keynesian Model To AD/AS
AP Macroeconomics Assignment: Apply The Keynesian Model To AD/AS
B. This simple Keynesian result relies on prices not changing when Y increases. One
reason prices wouldn't change is that input costs don't change. Explain why an
increase in GDP might not lead to increased costs for producers. Hint: The economy
is operating inside the PPF. (5 points)
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AP Macroeconomics Page 2 of 5
Assignment: Apply the Keynesian Model to AD/AS
2. A typical AS curve has three parts: a flat, horizontal portion at low levels of output, a
middle section with a more-or-less gentle upward slope, and a steep or vertical portion
at high levels of output. Let’s consider two of these parts individually, the horizontal
portion and the vertical portion.
A. Imagine that AS and AD intersect in the horizontal portion of the AS curve. Assume a
technological breakthrough increases the full-employment level of RGDP and shifts
the AS curve to the right. In this case, when aggregate supply increases, how does
the output of the economy change? Does supply create its own demand? (5 points)
B. Imagine that AS and AD intersect in the horizontal portion of the AS curve. In this
case, if aggregate demand increases, how does the output of the economy change?
Does demand drive the economy here? (5 points)
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AP Macroeconomics Page 3 of 5
Assignment: Apply the Keynesian Model to AD/AS
C. Imagine that AS and AD intersect in the vertical portion of the AS curve. In this case,
if aggregate demand increases, how does the output of the economy change? Does
demand drive the economy here? (5 points)
D. Imagine that AS and AD intersect in the vertical portion of the AS curve. Assume a
technological breakthrough increases the full-employment level of RGDP and shifts
the AS curve to the right. In this case, when aggregate supply increases, how does
the output of the economy change? Does supply create its own demand? (5 points)
E. Which part of the AS curve is consistent with the Keynesian model, and which part of
the AS curve is consistent with the classical model? (2 point)
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AP Macroeconomics Page 4 of 5
Assignment: Apply the Keynesian Model to AD/AS
B. Say you have two graphs of an economy: a graph showing the Keynesian model (as
discussed in part A, above) and another showing the AD/AS model. In the AD/AS
diagram, the AD curve will shift to the right by the amount of the increase in Y
predicted by the Keynesian AE model. If the AD curve intersects the AS curve in the
flat, Keynesian portion of the AS curve, what will be the increase in real output in the
AD/AS model resulting from the $100 million increase in government spending? (5
points)
_____________
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AP Macroeconomics Page 5 of 5
Assignment: Apply the Keynesian Model to AD/AS
C. Continuing the line of questioning from part B, above, now say the AD curve
intersects the AS curve where the AS is vertical. What will be the increase in real
output in the AD/AS model resulting from the $100 million increase in government
spending? (5 points)
D. If the AD curve intersects the AS curve in the middle section of the AS curve, can
you calculate the increase in real output in the AD/AS model resulting from the $100
million increase in government spending? If not, what additional information would
you need? (6 points)
E. In general, what effect does the slope of the AS curve have on the size of the change
in real output due to an increase in autonomous expenditure in the AE model? (5
points)
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