Here is the questions of Economic. Please answers all

Assignment #7
Econ 1102
Winter 2016
1- What is the difference in the explanation of the shape of the aggregate demand curve and
a single product demand curve? After all, both demand curves show an inverse
relationship between price and quantity.

2- The determinants of aggregate demand "determine" the location of the aggregate demand
curve. Explain the four basic determinants of aggregate demand.

3- Identify the ways in which each of the following determinants would have to change to
cause a decrease in aggregate demand: consumer wealth, consumer expectations,
business taxes, national income in countries abroad, exchange rates.

4- Economists think of three different aggregate supply curves based upon the time frame of
observation. Briefly describe each.

5- Describe the change in short-run aggregate supply that should result from each of the
following changes in determinants. Assume that nothing else is changing besides the
identified change. (Use "Decrease" or "Increase.")
(a) A rise in the average price of inputs;
(b) An increase in worker productivity;
(c) Government antipollution regulations become stricter;
(d) A new subsidy program is enacted for new business investment in productive
equipment;
(e) Energy prices decline.

6- List three events that would shift the short-run aggregate supply curve leftward.

7- List four government tax or spending policy options that would shift the short-run
aggregate supply curve rightward.

8- What is the effect on the multiplier when an increase in aggregate demand also causes the
price level to rise?

9- Suppose the aggregate demand and short-run aggregate supply schedules for a
hypothetical economy are as shown below:

(a) What will be the equilibrium price and real output level in this hypothetical economy? Is
this level of real GDP also the full-employment level of output? Explain.
(b) Why won't a price level of 110 be the equilibrium price level? Why won't a price level
of 130 index be the equilibrium price level?
(c) Suppose aggregate demand increases by $400 billion at each price level. What will be
the new equilibrium price and output levels?
(d) What factors might cause aggregate demand to increase?

10-

In the table below are aggregate demand and aggregate supply schedules.

(a) Suppose in Year 1, aggregate demand is shown in columns (1) and (2) in the above table and
short-runaggregate supply is shown in columns (1) and (4) in the above table. What will be the
equilibrium level of real GDP and the equilibrium price level?
(b) Suppose in Year 2, aggregate demand changes and is now shown in columns (1) and (3).
What will be the new equilibrium level of real GDP and the new equilibrium price level?
(c) Suppose in Year 3, aggregate demand changes and is now shown again in columns (1) and
(2). What will be the new level of real GDP and the new price level if prices and wages are
completely flexible downward?
(d) Suppose in Year 3, aggregate demand changes and is now shown again in columns (1) and
(2). What will be the new level of real GDP and the new price level if prices and wages are
completely inflexible downward?

11-

In the below diagram assume that the aggregate demand curve shifts from AD1 in year 1
to AD2 in year 2, only to fall back to AD1 in year 3.

(a) Explain what will happen to the equilibrium price level and the equilibrium level of
real GDP from year 1 to year 2.
(b) Locate the new position in year 3 on the assumption that prices and wages are
completely flexible downward. Label this position, Pb and GDPb for the price level and
real GDP respectively.
(c) Locate the new position in year 3 on the assumption that prices and wages are
completely inflexible downward. Label this position, Pc and GDPc for the price level and
real GDP respectively.

12-

Differentiate between "demand-pull" and "cost-push" inflation using the aggregate
demand-aggregate supply (short-run) model.

13-

Some economists argue that it is easier to resolve demand-pull inflation than cost-push
inflation. Use the aggregate demand-aggregate supply (short-run) model to explain this
assertion.

14-

How can an economy already at full-employment expand without igniting inflation?
Explain.

15-

Why does aggregate demand shift outward by a greater amount than the initial change in
spending?

16-

Explain the relationship between the aggregate expenditures model in graph (A) below
and the aggregate demand model in graph (B) below. In other words, explain how points
1, 2, and 3 are related to points 1', 2', and 3'.