Q1. Jeremy derives all of his utility from consuming milk shakes; he devotes hi entire $20 allowance to milk shakes each week. Suppose the price of milk shakes rise from $2 to $4. Compute Jeremy's Compensating Variation and Equivalent Variation.
Q2. Sets out the aggregate demand and aggregate supply schedules in Japan. Potential GDP is 600 trillion yen. What is the short-run macroeconomic equilibrium? Does Japan have an inflationary gap or a recessionary gap and what is its magnitude?