Question 1: Explain why a decrease in aggregate demand results in a lower level of employment, given a fixed aggregate supply.
Question 2: Distinguish between two sources of inflation. Explain why steady inflation is likely to be less harmful to an economy than a situation which inflation rates vary alot.
"A rise in planned investment spending in an economy will lead to a rise in consumer spending." use the concept of the multiplier to verify this statement.
In constructing the short run aggregate supply curve, what is meant by the term "short-run"? How does this concept differ from the long run and what is the effect on industry of the difference in terms of planning? Explain the role of labor contracts on movement along the SRAS curve.