e)(5 points) On a separate diagram, draw a supply curve that pertains to your behavior from points A to B and another supply curve that pertains to points A and C. Pretending that theseare short-run aggregate supply curves, under which curve would macroeconomic (demand side) policies have the most effect on output? On prices? In other words, which supply curveis more Keynesian and which is more Classical? f)(5 points) Suppose that in order to change prices, you need to make a new sign which costs you $5, these are referred to as menu costs. Is it worth it for you to change prices, why or why not? Explain. Part 2: True/ False Questions (2 points each – 40 points total) Answer T for True and F for False1)A fall in the tax rate on capital will cause the aggregate expenditure curve to shift up and the aggregate demand curve to shift to the left, all else constant. 2)One reason that the aggregate demand curve slopes downward is that when prices rise, say in the US, the relative price of imports fall and thus, US citizens substitute away from domestically produced goods toward imported goods and thus, GDP in the US will fall (all else constant).
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- Summer '17