06 AD - AS

Question 1

What happens in an increase in AD on the SRAS curve?

Answer 1

Shift the AD curve to the right
Caused by increases in government spending, consumption, investments, exports and imports

(Fall in interest rates will raise consumption and investment.)

Question 2

What happens in a decrease in AS on the SRAS curve?

Answer 2

SRAS curve will shift upwards and to the left

Caused by wages rising or raw materials going up in price etc

Question 3

Where is equilibrium on the long run classical model?

Answer 3

Where the LRAS intersects the AD curve

SRAS passes through the point where LRAS = AD

Question 4

Where is equilibrium in the Keynesian LRAS curve?

Answer 4

Where AD cuts the curve on the LRAS