1. Explain what the aggregate supply curve represents and why it is upward sloping.
2. Explain what the aggregate demand curve represents and why it is downward sloping.
3. Explain what effect a reduction in the money supply has on the aggregate demand curve.
4. Explain how a reduction in each of the following variables affects the aggregate price level (P): (a) the expected price level; (b) employment; (c) the markup; and (d) unemployment benefits.
5. Suppose the economy is operating at a point where output is greater than the natural level of output. Given this information, is the actual price level equal to the expected price level at the current level of output? Explain.
6. When output exceeds the natural level of output, explain what adjustments will occur in the labour market and discuss what effect they will have on output and the price level.
7. Based on your understanding of the aggregate supply and aggregate demand model and the IS-LM model, graphically illustrate and explain what effect an increase in the money supply will have on the economy. In your graphs, clearly illustrate the short-run and medium-run equilibria.
8. Based on your understanding of the aggregate supply and aggregate demand model and the IS-LM model, graphically illustrate and explain what effect a tax increase will have on the economy. In your graphs, clearly illustrate the short-run and medium-run equilibria.
9. Explain what is meant by the neutrality of money.
10. Analysis of the macroeconomic effects of changes in the money supply indicates that money is ‘neutral' in the medium run. Suppose there is a reduction in government spending. Will this fiscal policy action also be neutral in the medium run? Explain.
11. Based on your understanding of the aggregate supply and aggregate demand model and the IS-LM model, graphically illustrate and explain what effect a reduction in the price of oil will have on the economy. In your graphs, clearly illustrate the short-run and medium-run equilibria. Also include in your answer an explanation of the effects of this change in the price of oil on the labour market and the equilibrium real wage.
12. Based on your understanding of the aggregate supply and aggregate demand model and the IS-LM model, graphically illustrate and explain what effect a decrease in the money supply will have on the economy. In your graphs, clearly illustrate the short-run and medium-run equilibria.
13. When output is less than the natural level of output, explain what adjustments will occur in the labour market and discuss what effect they will have on output and the price level.