3.Suppose you compare your income this year and last year and find that your nominal income fell but your real income rose. How could this have happened?

4.Suppose that people expect inflation to equal 3 percent, but in fact prices rise by 5 percent. Indicate whether this unexpected higher rate of inflation would help or hurt each of the following groups.

1. a homeowner with a fixed-rate mortgage.
2. a union worker with a fixed labor contract
3. a company that has invested some of its endowment in government bond which pay fixed rate of return.

5. Indicate how each of the following events would affect the aggregate demand AD curve:

1. a short-run decrease in the price level
2. an increase in consumer confidence on the price level and real GDP
3. an increase in government purchases