Name: Section: T.A. Name:180.101 ELEMENTS OF MACROECONOMICS Fall, 2011Problem Set #3Prof. Louis J. MacciniINSTRUCTIONS: Above, write your name, section number and T. A. name. Answer each question in the space provided, or on the back of the same sheet. 1.A decline in energy prices should reduce the average price level but otherwise leave the economy unaffected. True, false, uncertain. Explain in depth.
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2. A country is at war, and the war is going badly. A politician argues that the fact that the war is not going well has caused a “crisis of confidence” among consumers and this will cause a recession. Is this possible? If so, how? Use an aggregate demand-aggregate supply analysis to answer the question. Explain intuitively what is going on.