In the Aggregate Demand/Aggregate Supply model of the macro economy, AD slopes down, LRAS is vertical, and SRAS slopes up. In one sentence each, give one reason why

[The explanations below are much more complete than you were expected to give on the quiz; a note for 1. Such as "fixed quantity of money buys more goods" was good enough for the quiz.]

 1. AD slopes down:

There are three good reasons. The AD curve shows the relationship between the overall price level and the volume of goods and services agents want to purchase, for fixed everything except the US output price level. So, if the price level falls,

            1.  the existing, fixed, quantity of money in the economy will now buy more goods and services, i.e. has greater real value, so people have more wealth, will tend to want to buy more, AD slopes down.

            2.  For the given, fixed, income the current quantity of money, now worth more real goods and services, is more than is needed for transactions (spending) purposes. Some of it is therefore deposited in financial institutions, increasing the supply of loanable funds. This results in a decline in the real interest rate and therefore more purchases financed by borrowing (e.g. Investment, housing, cars, consumer durables), AD slopes down.

            3.  As the US output price level declines, relative to unchanged price levels in the rest of the world (Canada, Mexico, Japan, Europe etc), US goods become cheaper relative to foreign goods. So foreigners buy more US goods, US residents buy fewer foreign goods, eXports increase, iMports decrease, (X - M) increases, so aggregate expenditure on final goods increases, AD slopes down.

2.  LRAS is vertical:

 
Long Run Aggregate Supply reflects how much sellers in aggregate in the economy will want to sell at different output price levels, given time for adjustments to any changes in things other than the structure of the economy, the labor force, the capital stock, and technology. It is vertical because given the resources available, technology, and organization, the economy has a certain capacity, i.e. ability to produce output on a sustainable (i.e. continuing indefinitely) basis, and that capacity is not changed by changes in the price level. LRAS corresponds to the output the economy can produce at "full employment" [NAIRU, non-accelerating-inflation rate of unemployment]; in the short run the economy might produce more or less, but it cannot/would not do that indefinitely. LRAS can shift only if things change that change the capacity of the economy to produce, e.g. larger labor force (immigration or population growth), larger capital stock (from net investment over time), better technology, different organization or system giving better efficiency.

3.  SRAS slopes up:

At least some input prices do not change immediately when output prices change. The "price level" in the AD/AS model is the price level for output; in the long run there will be a relationship between output and input prices which produces zero economic profit for the typical firm. But many input prices are either set by long term contracts which take time to renegotiate (e.g. leases, long term arrangements for raw material supplies, union wage agreements), or are somewhat "sticky," i.e. do not adjust immediately to changes in output prices. So if the price level goes up, but at least some input prices don't, production at the previous level just became more profitable, so firms will want to sell more output. Since you can make this argument for any firm, you can for all of them, so the aggregate amount they want to sell will increase; so SRAS slopes up.