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    66 Classical LRAS Ed

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    castroxfour

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    66 Classical LRAS Ed

    Uploaded by

    castroxfour
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    16 views2 pages

    66 Classical LRAS Ed

    Uploaded by

    castroxfour

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    66.

    Classical Long-run Aggregate Supply


    1. Missing words
    What is meant by the Long-run? ____________________________________
    The Classical LRAS allows economists to illustrate a number of different scenarios that might face an economy. It
    assumes that the economy is always at __________ ______________. This is because Classical economists assume
    that those not in work choose to not work and are therefore _______________ __________________.

    2. Graphical Analysis
    2.1 On the following diagram draw a Classical Long Run Aggregate Supply curve and then add an Aggregate Demand
    curve for each of the situations listed. Identify the corresponding level of output and price level for each situation.
    2.2 An economy using expansionary fiscal policy –
    Real Output = ________
    Price Level = _________

    2.3 An economy using deflationary monetary policy –


    Real Output = _________
    Price Level = __________

    2.4 An economy using supply side policies –


    Real Output = ________
    Price Level = _______

    3. More Graphical Analysis


    Use the following diagram to answer the questions below.
    1. An economy is operating at AD1. If it experiences an
    appreciation of its currency, where will AD move to?
    _______
    Explain why: _______________________________

    _________________________________________

    _________________________________________
    2. An economy is operating at AD1. Which of the
    following policies is likely to cause AD to shift to AD3?
    a) A cut in interest rates
    b) A cut in taxation
    c) An increase in spending on education and training
    d) A cut in government spending

    Explain why _______________________________

    _________________________________________
    3. Which of the following is likely to cause the Aggregate Demand curve to shift from AD 1 to AD2?
    a) An increase in the level of income tax
    b) An increase in labour mobility
    c) An increase in the domestic inflation rate
    d) An increase in the inflation rate of a main export partner.

    Explain why: ____________________________________________________________________________

    ______________________________________________________________________________________
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    66

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