Question 1. Consider the following price information:
Year 1 Year 2
Cup of coffee $.50 $1.00
Glass of milk $1.00 $2.00
(a) Based on the information given, what was the inflation rate between year 1 and year 2?
(b) What happened to the price of coffee relative to that of milk between year 1 and year 2?
Question 2. Why does the aggregate demand curve slope down? Give real-world examples of the three effects that explain the slope of the curve.
Question 3. How is the aggregate supply curve different from the supply curve for a single good like pizza?