Econowaugh AP: March 2020

Understanding AP Classical View

Multiple Choice Questions

1) The clearest example of the Classical View is the Vertical Aggregate Supply Curve

Any change in AD only increases or decreases the PL

No Change in RGDP

We think of the Classical View having a vertical Aggregate Supply curve,
so when AD increase we have an increase in the PL but no change in the RGDP/output.

1995 Exam

(A.) the price level is rising (No change in RGDP)

If Government Spending is increasing and the RGDP (No Change)

then the AS curve must be vertical

therefore

the PL increases but RGDP (no change)

2) You read a Multiple Choice question that starts with the phrase "In the Long-Run".

In the Long-Run implies that we are starting at Long-Run Equilibrium, then something changes such as the FED increasing the Money Supply which increases aggregate demand which increases the Price Level. We are now in an Inflationary Scenario and we must figure out what happens in the Long-Run.

(C.) Real GDP (No change) PL decreases

or
we can think of it like this

In the graph above
recognize that we are moving from LR-Equilibrium into an inflationary scenario

and

with no Monetary or Fiscal Policy actions (In the Long-Run) wages and prices will increase

and

we will return to Long-Run Equilibrium (Full Employment) at a higher price level

therefore

PL increased and RGDP/Output did not change (back to full employment)

Notice the graph above is Inflation
(E.) As wages increase, it shifts the SRAS to the left,

Business prices increase and output returns to full employment (LR-Equilibrium)

at a higher price level (No change in the RGDP)

1990 Exam

Notice the graph above is Recession

(C.) lower resource prices, which will reduce costs and shift

SRAS to the right

Until full-employment is achieved

at a lower price level

Perhaps we should have started with the types of questions tested by the College Board
on the Classical View that involve no graphs
but understandings about the characteristics of the Classical View

From the Classical View Cheat Sheet
found here.