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AP Economics > Test Flashcards > Flashcards

Test Flashcards

1
Q

Why are price levels fixed in short run?

A

Works don’t have time to realize that inflation has lowered their real wages

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2
Q

In the long run nominal wages ___ as prices change

A

Change

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3
Q

Why do nominal wages change in the long run?

A

Works realize that their real wages have decreased and they request wages

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4
Q

What are nominal wages?

A

The current level of wage s

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5
Q

What are real wages?

A

Wages that are adjusted for inflation

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6
Q

What are 3 assumptions regarding the SRAS curve?

A

Initial price level is P1
Nominal wages are fixed
Price level can move up or down

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7
Q

Why is the SRAS curve positively sloped?

A

Nominal wages stay constant as prices change

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8
Q

LRAS refers to what type of wages?

A

Real wages

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9
Q

Why is the LRAS curve vertically sloped?

A

Nominal wages change proportionally to change in prices

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10
Q

What is the economy always seeking?

A

Full employment

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11
Q

What happens in the LRAS?

A

Everything eventually returns to equilibrium

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12
Q

In the short run, demand pull inflation does what

A

Drives up prices and increased output

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13
Q

In the long run demand pull inflation does what?

A

It raises prices

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14
Q

What is stagflation??

A

High unemployment rate while also experiencing recession

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15
Q

Cost push inflation is also called?

A

Stagflation

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16
Q

When does cost push inflation occur?

A

When the SRAS curve shifts left from equilibrium

17
Q

What happens when the government tries to counter cost push inflation?

A

It causes prices to rise even more

18
Q

If the government leaves the cost push inflation alone what happens?

A

Nominal shares fall and AS shifts back to equilibrium

19
Q

When does a recession occur?

A

AD shift leftward

20
Q

What does the Phillips curve illustrate?

A

The relationship between inflation and unemployment

21
Q

What is the relationship between inflation and unemployment?

A

Inverse

22
Q

High inflation=

A

Low employment

23
Q

Low inflation=

A

High unemployment

24
Q

What could explain what cause cost push inflation?

A

Aggregate supply shocks by oil

25
Q

Stagflation negates

A

The Phillips curve

26
Q

What does the laffer curve show?

A

The relationship better tax rates and tax revenues

27
Q

The laffer curve is what type of economics?

A

Supply side

28
Q

In the bottom of the laffer curve

A

The higher the tax rate the larger the tax revenue

29
Q

The top of the laffer curve the

A

Higher the tax rate the lower the tax revenue

30
Q

Government regulation is seen as

A

Inhibiting productivity and LRAS

31
Q

In the short run nominal wages are ______ as price changes

A

Fixed

AP Economics (19 decks)

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