ALL Classical View FRQ's

Classical View - FRQ's
Need to know how the Classical View has been tested on FRQ's
Below are examples.

2019 AP Macroeconomics Exam (Set 1)

(A.)

Recession

(B.) The Central Bank and the Government take no policy actions to close the output gap.

(i) Explain how the economy will adjust in the Long-Run

If there are no Fiscal or Monetary policy actions

in the long run,

We are in a recession, workers will accept lower wages to return to work, 

when wages fall the SRAS curve will shift to the right, 

when wages fall business can lower their prices

lower prices cause output to increase

we return to LR equilibrium at a lower PL

PL falls, RGDP returns to full employment.

(ii)

2019 AP Macroeconomics Exam (Set 2)

(A.)

Inflation

(B.) Assume the Central Bank and the Government take no policy actions to close the gap.

(i) On your graph, show how the economy automatically adjusts in the Long-Run.

(ii) Explain the Long-Run adjustment.

The economy is in an Inflationary scenario,

Unemployment is low and business is competing for workers

Wages are bid up (increased) and the SRAS curve shifts to the left because of higher wages

prices must also increase to pay for the higher wages,

Higher prices cause output to fall

when output falls we

return to Long Run equilibrium

at a higher price level

2017 AP Macroeconomics Exam

(A.) 

Actual Unemployment > Natural Rate of Unemployment = Recession

(B.) The Government takes no policy action what happens in the Long-Run?

(i) Short-Run Aggregate Supply Curve. Explain.

We are in a Recession, 

If there is no monetary or Fiscal Policy, In the Long-Run

Wages will decrease, shifting the SRAS curve to the right

Business will lower their Prices as wages fall

we will return to LR Equilibrium at a Lower PL

2016 AP Macroeconomics Exam

(A.) 

Actual Unemployment > Natural Rate of Unemployment = Recession

(B.) No policy actions are taken (Fiscal or Monetary), will the SRPC shift right, left, or remain the same in the long-run? Explain.

We know that we are in a recession

In a recession in the long-run the SRAS curve will shift to the right, 

as wages and prices fall

This is a leftward shift of the SRPC

The inflation rate will decrease 

and 

we will return to the Natural Rate of Unemployment (NRU)

2013 AP Macroeconomics Exam

(A.) 

(B.) (C.)

We are in a Recession at Point C

(D.) Government Spending or Reducing Taxes is Expansionary Fiscal Policy

(E.) No discretionary (Fiscal or Monetary) policy actions are taken. What will happen to the SRAS curve in the Long Run. Explain.

If we are in a recession, 

people are out of work, unemployment is high,

workers will accept lower wages to return to work, 

lower wages and the SRAS curve shifts right, 

lower wages allow business to lower prices,

lower prices cause people to buy more,

output increases back to Full Employment

at a lower PL

2011 AP Macroeconomics Exam

(A.) Draw a Phillips curve graph, show a recession labelled A.

(B.) Draw a AD/AS graph in recession.

(E.) No Fiscal or Monetary Policy during the recession.

(i) In the Long Run, SRAS?

In a Recession

Wages and Prices fall

SRAS shifts right

We return to LR Equilibrium

at a lower PL

(ii) In the Long Run, what will happen to the Natural Rate of Unemployment (NRU)

The NRU is unaffected.

2011B AP Macroeconomics Exam

(A.) Using a AD/AS curve show Equilibrium. 

(B) Consumer Confidence falls = Recession

Consumer Confidence falls = Recession

(F.) No Fiscal or Monetary policy changes, SRAS? Explain.

This is getting repetitive

-

In a Recession

Wages and Prices fall

SRAS shifts right

We return to LR Equilibrium

at a lower PL

2010 AP Macroeconomics Exam

(A.) AD/AS in Equilibrium

(B.) Government increases spending on National Defense without raising taxes.

(C.) Economy adjusts to a new Long-Run Equilibrium after the increase in Government Spending.

(i) SRAS? Explain

We are in a recession, workers will accept lower wages to return to work, 

when wages fall the SRAS curve will shift to the right, 

when wages fall business can lower their prices

lower prices cause output to increase

we return to LR equilibrium at a lower PL

PL falls, RGDP returns to full employment.

2007B AP Macroeconomics Exam

(A.)

(D.) In a recession, no fiscal or monetary policy changes, what happens to the SRAS and AD curve?

In a Recession

Wages and Prices fall

SRAS shifts right

We return to LR Equilibrium

at a lower PL

2004 AP Macroeconomics Exam

(A.)

Less than Full Employment = Recession

(F.) No policy actions are taken (Fiscal or Monetary), what happens to the SRAS, Output and PL?

In a Recession

Wages and Prices fall

SRAS shifts right

We return to LR Equilibrium

at a lower PL

Understanding Classical View Multiple Choice Questions

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.

Understand that all of these phrases above clue us into the fact that we are taking the
Classical View

1990 Exam

(D.) Prices and Wages are flexible

1995 Exam

(B.) The economy is self-correcting to full-employment

2000 Exam

(A.) A market economy is self-correcting and thus

will not remain in recession indefinitely

2005 Exam

(C.) Self-correcting market forces stemming from

flexible prices and wages

Or

We could talk about if the College Board starts a question in a Recession

2008 Exam

Less than Full Employment = Recession

(A.) Output increases & the PL falls