AP® Macroeconomics · Free response

An inflationary gap in Rivon with no policy response

write it first, then score yourself point by point

Short free-response question · four-function calculator · 5 points · about 12 minutes

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The question

Name: ______________________   Date: ____________   An inflationary gap in Rivon with no policy response (5 points)

Rivon is an invented country whose real GDP is above full-employment output, and its government takes no policy action.

  1. (A) Draw a correctly labeled AD-AS graph showing Rivon's current short-run equilibrium, with LRAS, and show the long-run adjustment and the new long-run equilibrium. [3 points]

  2. (B) Explain why the curve you shifted in part A shifts in the long run. [1 point]

  3. (C) Compared with today, identify what happens to Rivon's unemployment rate once the economy is back in long-run equilibrium. [1 point]