Principles of Macroeconomics / Unit 8 MAC 0717 worked example, 60 to 90 seconds
Which Curve, Which Way?
The idea
Sort every event with two questions. Does it change what buyers want to spend at each price level, or what it costs firms to produce at each price level? Spending changes move aggregate demand; cost changes move short-run aggregate supply. Then fix the direction. More spending shifts demand right, less shifts it left. Higher costs shift supply left, lower costs shift it right. Productivity is the one shifter that moves supply right and potential GDP with it.
In practice
Worked example: a fall in real wages lowers the cost of producing, so short-run supply shifts right. An oil price rise shifts it left. A cut in taxes leaves households more to spend, so demand shifts right. A slump abroad cuts exports, so demand shifts left. A productivity gain shifts supply right and moves potential GDP too.
Where people slip
A change in the price level appears in none of these lists, because it moves the economy along the curves rather than shifting either. Any answer option that offers a price-level change as a shifter is the distractor.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
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