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Unformatted text preview: ECON 101B: Section 13 Handout Date: 03/02/2011 Question 1 Suppose that the aggregate demand curve can be described with the relationship MV ( i ) = PY . 1. Draw the aggregate demand curve. 2. Explain how an increase in the overall price level may a/ect aggregate demand in the economy. What does it mean graphically? 3. Consider an example of expansionary monetary policy. What is the e/ect on aggregate demand? How does the graphical representation di/er from the case above? 4. Now answer the previous question for expansionary &scal policy (an exogenous increase in government expenditure or a decrease in taxes). Hint: Consider how i might change and its e/ect on V . 5. What are the other exogenous factors that may a/ect aggregate demand? 6. It is widely asserted that for a given stock of real money balances M=P , GDP identity Y = C + I + G + NX represents aggregate demand. Can you reconcile this representation with the quantity theory equation taking into account your answer to the previous question? Question 2 1. If prices are absolutely sticky, how does the aggregate supply curve look like?...
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This note was uploaded on 10/04/2011 for the course ECON 101b taught by Professor Staff during the Spring '08 term at University of California, Berkeley.
- Spring '08