Graphing for the Rubric: Getting AD–AS Points

You’ll be able to

Draw a correctly labeled AD–AS diagram that satisfies rubric requirements
Trace a multi-step shock through output, the price level, unemployment and interest rates
Identify the specific errors that cost points on AD–AS free responses

What a rubric actually rewards

AD–AS free responses are graded on discrete, mechanical things. Axes labeled — price level vertical, real GDP horizontal. All three curves drawn and labeled — AD, SRAS, LRAS — with LRAS vertical. Equilibrium marked with dotted lines to both axes. The shift drawn with an arrow and the new curve labeled AD₂ or SRAS₂. The direction stated in words, not left implicit in the picture. Students who understand the economics perfectly still lose points by omitting labels, so treat the checklist as part of the answer.

The chain most questions follow

shock → which curve, which direction → real GDP and price level → unemployment (opposite to GDP) → interest rate (same direction as GDP, via money demand)

Unemployment moves opposite to real GDP. The nominal interest rate moves with real GDP, because higher income raises money demand.

The four links to carry through

Later parts of a question almost always ask for consequences beyond the graph, and the links are fixed. Output up means unemployment down — that is Okun's relationship in words. Output up means higher income, so money demand rises and the nominal interest rate rises. A higher interest rate means investment falls, which is the crowding-out channel. And a higher domestic interest rate attracts foreign capital, so the currency appreciates and net exports fall. Knowing this chain lets you answer parts (c) and (d) without any new reasoning.

The five errors that cost the most

First: shifting the wrong curve — spending changes move AD, cost changes move SRAS. Second: shifting LRAS for a demand shock, which claims capacity changed when it did not. Third: drawing SRAS vertical or LRAS sloped. Fourth: unlabeled axes, a free point given away. Fifth: saying "the graph shows it" instead of stating the direction in words — the rubric needs the words. None of these is an economics failure; all of them are avoidable.

Worked example

The government sharply increases spending on infrastructure while the economy is in a recessionary gap. Describe the full chain: the graph, output, the price level, unemployment, the interest rate and investment.

1.G is a component of AD, so AD shifts right. LRAS and SRAS are unchanged.
2.Along the upward-sloping SRAS, real GDP rises and the price level rises.
3.Higher real GDP means lower cyclical unemployment.
4.Higher income raises money demand, so the nominal interest rate rises.
5.The higher interest rate reduces interest-sensitive investment — partial crowding out.

Answer: AD shifts right; real GDP and the price level both rise; unemployment falls; the nominal interest rate rises; investment falls somewhat. The recessionary gap narrows, and the crowding out means the net effect on output is smaller than the multiplier alone would suggest.

Watch out

Draw the shift as a whole new curve parallel to the original, not as a bend or a rotation, and put an arrow on it. A curve that crosses the original in the middle is ambiguous about direction and graders will not guess in your favor.

Checkpoint

Expansionary fiscal policy raises real GDP. The effect on the nominal interest rate is that it:

Checkpoint

A student draws LRAS shifting right to represent an increase in government spending. This is wrong because:

Checkpoint

On an AD–AS diagram, real GDP belongs on the:

On the exam

Before writing prose, draw and fully label the graph. Many parts of the question can then be read straight off it, and the labels themselves are worth points regardless of what your explanation says.

Answer the 3 checkpoints as you read.