Question 1:
Using the aggregate demand - aggregate supply (AD-AS) diagram, show how the four economic events would affect economic activity, the price and employment levels. (Note: use a separate AD-AS diagram for each event)
(a) A decrease in personal income tax;
(b) An increase in workforce skills through special training programs;
(c) An decrease in exports;
(d) An increase in an economy's capital stock.
Question 2:
(a) Describe three problems of using fiscal policy to achieve a precise level of GDP.
(b) Why is frictional unemployment inevitable in an economy characterised by imperfect job information and non-zero job-search time?
(c) Is structural unemployment something macroeconomic policymakers should be concerned about? How does it differ from cyclical unemployment?
Question 3:
(a) Illustrate and explain with diagrams the difference between demand-pull and cost-push inflation;
(b) Provide (describe) two (2) causes of each type of inflation