AS AD MODEL: EXAMPLES

Question 1

Short-run if business Investment Increases

Answer 1

AD shifts right to intersect with SRAS right of LRAS –price level and GDP Rises, unemployment falls

Question 2

Long-run if business Investment Increases

Answer 2

SRAS shifts left to intersect with AD and LRAS –GDP falls back to potential level, price level rises, and unemployment rises back to natural rate

Question 3

Short-run if technological Progress

Answer 3

LRAS shifts right, AD and SRAS now intersect to the
left of potential output, unemployment rises

Question 4

long-run if technological Progress

Answer 4

SRAS shifts right to intersect with AD and LRAS –
GDP increases to the new potential level, price level falls, unemployment falls to natural rate

Question 5

Short-run if government spending increases

Answer 5

AD shifts right to intersect with SRAS right of LRAS –
price level and GDP Rises, unemployment falls

Question 6

long-run if government spending increases