1. Suppose that the long-‐run aggregate supply curve is positioned at a real GDP level of $15 trillion in base-‐year dollars, and the long-‐run equilibrium
price level (in index number form) is 115. Mention 3 factors that could explain why the economy could move to a new equilibrium at a real GDP level of $15 trillion in base year dollars and the price level (in index number form) of 105.
2. Suppose an economy in long and short run equilibrium. Explain what will happen to the equilibrium price level and real GDP level in the short run following each of these events: a. An appreciation of the domestic currency relative to other world currencies. b. An increase in the quantity of money in circulation. c. A decrease in taxes. d. An improvement in the prospects of the economy that encourages businesses to increase investment.
3. Assume that the position of a nation’s aggregate demand curve has not changed, but the long-‐run equilibrium price level has declined. Other things
being equal, which of the following factors might account for this event?
a. An increase in labor productivity b. A decrease in the capital stock c. A decrease in the quantity of money in circulation d. The discovery of new mineral resources used to produce various goods
e. A technological improvement
4. Consider an economy in equilibrium in the short run. Explain how the following changes affect the equilibrium: a. Significant fall in oil prices occur. b. The quantity of money in circulation increases. c. Significant fall in oil prices occur occur and the quantity of money in circulation increases. d. There has been a war, with destruction of