Economics Micro & Macro (CliffsAP)

Free-Response Answers and Explanations

1. A.There are two ways to handle this solution. If you drew either of the following graphs, then you are correct.

B.There are also two ways to handle this solution:

■ A decrease in government spending will have an impact on a rising price level. A decrease in government

expenditures will slow private sector growth.

■ An increase in personal taxes will help stabilize the price level by decreasing disposable income.

Real GDP

Full employment

LRAS SRAS

Price

Level

Real GDP

AD

AS

AD^1

Price

Level

Part IV: AP Macroeconomics & Microeconomics Tests