ADAS essay rubric

A. 1. graph

PL AD1 AS PL AD1 LRAS SRAS

AD2 AD2

Y2 Y1 Real gdp Y2 Y1
Real gdp

A. 2

The decrease in aggregate demand can be the result of a decrease in

Consumption (higher taxes lower disposable income, increased savings, lack of
consumer confidence)
Investment (higher interest rates, capital flight, lack of business confidence,)
Government Spending (government decreases budget expenditures)
Exports (dollar appreciates, lower quality goods, other countries suffer a
recession)

A 3 Fiscal policy: Either reduce taxes or increase government spending

B 1 graph

B. 1. graph
AD2
PL AD1 AS PL AD1 LRAS SRAS

AD2

Y1 Real gdp Y1
Real gdp

B.2 The increase in aggregate demand can be the result of an increase in:
Consumption (lower savings, increased value of assets, fear of future
prices)
Investment (unintended investment inventory buildup)
Note that the increase in capital stock could shift the short run demand
Curve to the right but would in the long run shift the lras to the right
 Government spending (government expenditures increase without a
Corresponding increase in taxes)
B3 Fiscal policy solution: increase taxes and/or decrease government expenditures

C 1 graph

C. 1. graph lras
PL sras2
2
sras AD PL AD LRAS sras

sras

Y2 Y1 Real gdp Y2 Y1 Real

gdp

C 2 A decrease in the short run aggregate supply curve can be the result of a supply side
shock such as an unexpected surge in energy prices. Anything that increases wages
(labor) or interest rates (capital) could explain a decrease in short run aggregate supply

C3 Fiscal policy solution: Needs to be supply side or else it would lead to more inflation.
(Decrease business taxes, decrease business regulations)