1)

a. What is the IS curve?

b. What are five things that causes the IS curve to shift?

2)

a. What is the MP curve?

b. What are two things that causes the MP curve to shift?

c. Derive mathematically Aggregate Demand curve using the MP and IS curves.

3)

a. What is the Phillips curve?

b. Show graphically on how to derive at the Non-Accelerating Inflation Rate of

Unemployment using the Philips curve.

4) If the economy is in recession, what should happens to the target interest rate according

to Taylor's rule? Show graphically using the ASAD Model.

5) Discuss the what happens to aggregate supply, demand, equilibrium price and output

under these circumstances. (In this question assume all changes occur ONLY in the short

run).

a. There are new developments in technology

b. Increase in the price of inputs used by many firms.

c. Government reduces taxes on households.

d. Imports from other countries increase.

e. Labor supply decreases.

6) Show graphically how the economy responds to a temporary negative aggregate supply

shock using both the Monetary policy curve (MP) and the ASAD model.

7) Show graphically and explain in detail cost push inflation.

8) How can government increase the quantity of aggregate output demanded by changing

government spending and taxes? Why does the multiplier for spending changes differ

from that for tax changes?

9) Suppose a bottle of wine sells for $16 in California and for E10 in France. Assuming a

nominal exchange rate of 0.75 euro per dollar.

a.calculate the real exchange rate between U.S. wine and French wine.

b.calculate the real exchange rate between U.S. wine and French wine if the domestic price

of U.S. wine is now $12 a bottle

10) What are the short-run effects on aggregate output and the inflation rate when the

domestic currency appreciates or depreciates?