Home › AP Macroeconomics › Economics › The Aggregate Demand/Aggregate Supply Model › Still in the intermediate zone of the SRAS curve…
Still in the intermediate zone of the SRAS curve, what happens to output and the price level when AD instead shifts to the left?
AOutput rises while the price level falls
BNeither output nor the price level changes
COutput falls while the price level rises
DBoth output and the price level fall
Answer & Solution
Correct answer: D. Both output and the price level fall
1. In the intermediate zone, the SRAS curve is upward-sloping.
2. Along an upward-sloping curve, a leftward AD shift lowers both the quantity where the curves intersect and the price level at that intersection.
3. Lower output here also means output moves farther from potential GDP, which raises unemployment.
4. The lower price level at the new intersection puts downward pressure on inflation instead.
_Source: OpenStax Principles of Macroeconomics for AP Courses (CC BY 4.0), Ch 10 "The Aggregate Demand/Aggregate Supply Model", section 10.6 | Keynes’ Law and Say’s Law in the AD/AS Model_
Related questions
Alongside monetary policy, two federal laws were passed as a fiscal policy response to theIn response to the financial crisis following the housing bust, the Federal Reserve lowereWhen the housing bubble burst, overall household wealth dropped dramatically and credit maDuring the housing bubble, rising home values made homeowners feel wealthier and encourageIn the intermediate zone of the SRAS curve, which is upward-sloping between the flat KeyneThe neoclassical zone sits at the far right of the SRAS curve, where it is nearly verticalThe Keynesian zone sits at the far left of the SRAS curve, where it is relatively flat andTwo possible triggers for inflationary pressure appear in the AD/AS model. What are they?