Chapter 31 — Exercises

A1. Draw the AS-AD diagram. Label AD, SRAS, LRAS, equilibrium price level, and real GDP. A2. Show AD shifting right. What happens to price level and GDP in the short run? In the long run? A3. Show SRAS shifting left. What happens? Why is this called stagflation? A4. COVID was both AD-left and SRAS-left. Show this on the diagram. Why is the price-level effect ambiguous? A5. The economy is in a recessionary gap. Apply the Keynesian argument for intervention and the classical argument for self-correction. A6. The 2021 American Rescue Plan shifted AD right into a supply-constrained economy. Show this on the AS-AD diagram. What did it predict for inflation? Was the prediction correct? A7. Compare the 2008 recession (AD left) to the 1970s stagflation (SRAS left). Which is harder for policy to address? Why? A8. "In the long run, we are all dead." What was Keynes's point?

Selected answers in appendices/answers-to-selected.md.