1 Suppose we have the following information for an economy: GDP deflator Planned aggregate Planned aggregate expenditure output 90 550 150 100 500 300 110 450 450 120 400 600 130 350 750

2. Plot the AD and AS curves in a carefully labeled diagram.

3.What are the short-run equilibrium values of real GDP and the price level?

4.Growth in potential output is determined by growth in the labour force and growth in labour productivity. Suppose the labour force grows by 1.5 percent a year and labour productivity, based on increased capital and improved technology, grows by 1.0 percent a year.

5. What is the annual growth in potential output?

6. Illustrate the growth in potential output in an AD/AS diagram.

7. Aggregate demand is not changed by the change in potential output. Indicate any output gap caused by the change in potential output

8.Draw an AD/AS diagram that shows an economy called Westland in short-run equilibrium with GDP equal to potential GDP.

9.Suppose a slowdown in the rate of growth of GDP in China cuts Chinese imports of primary products from Westland. Using your AD/AS diagram illustrate and explain your forecast for the effects of this change on the equilibrium GDP and price level in Westland. 10.What effect, if any, would a slowdown in GDP growth in China have on employment and unemployment rates in Westland? Explain why.

11.Consider an economy described by the following: AD: Y = 2250 10P, AS: P = 125+0.1Y. 12. What are the short-run equilibrium values for real GDP and the price level?

13. Assume potential output is 500 and draw an AD/AS/YP diagram to show the initial short-run equilibrium real GDP, price level and potential output.

14. Changes in international market conditions drive up prices for crude oil and base metals. Increased production costs driven by these higher input prices raise the general price level by 5 at every level of output. Write the equation of the new AS curve. What are the new short-run equilibrium real GDP and price level?

15. Draw the new AS curve in your diagram for (b). What is the size of the output gap?r