# PROBSET4 - PROBLEM SET 4 PROBLEMS FOR AGG DEMAND-AGG SUPPLY MODEL(HANDOUT AND CHAPTER 5 AND INTRODUCTION TO MONEY 1 What factors will shift the

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PROBLEM SET 4 PROBLEMS FOR AGG. DEMAND-AGG. SUPPLY MODEL (HANDOUT AND CHAPTER 5) AND INTRODUCTION TO MONEY 1. What factors will shift the short-run aggregate supply curve ? What factors shift the medium-run aggregate supply curve ? 2. For each of the following, determine whether the aggregate demand curve shifts or the short-run aggregate supply curve shifts . Draw a separate graph to illustrate each situation (Mark the initial equilibrium so that all three curves cross at the full-employment output). Show clearly what happens to the inflation rate and real output/income in the short-run . a. A decrease in consumption spending. b. An increase in government spending. c. Wage costs increase less rapidly or fall. d. The prices of raw materials used in production increase more rapidly. e. A cut in income taxes that households pay. f. Energy prices increase less rapidly or fall. g. The money supply increases. h. Interest rates increase. i. Businesses expect that sales and profits will fall in the future (HINT: Consider the impact on investment spending). j. Imports decrease. k. Exports increase. Given what happens to equilibrium real output/income in the short-run in each part above, what will happen to equilibrium real output/income in the medium-run

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## This note was uploaded on 05/21/2011 for the course ECONOMICS 12343 taught by Professor Taber during the Spring '10 term at Orange Coast College.

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PROBSET4 - PROBLEM SET 4 PROBLEMS FOR AGG DEMAND-AGG SUPPLY MODEL(HANDOUT AND CHAPTER 5 AND INTRODUCTION TO MONEY 1 What factors will shift the

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