1."During a boom, when inflation is perceived to be greater problem than unemployment, the government can run a budget surplus, helping to slow down the economy," Do you agree or disagree with the statement? Explain.
2. Explain and illustrate using the graph of the labour market and the production function the effect of decrease in labour productivity on potential GDP, the quantity of labour, and the real wage rate.
3. Consider an economy that is operating at full employment. Explain and illustrate using AD/AS model the effect of a decrease in government spending on real income and the price level in the short run and in the long run. (note: clearly explain the process of adjustment from short run to long run)