All questions involve a "ceteris paribus" scenario.

For questions 1-5 please explain what will happen to the price level and unemployment. Assume that the changes occur in Region 2 of the AS function. Please treat each change separately.

1. An increase in productivity (no increase in nominal wages).

2. A 12 % Increase in wages (no change in productivity).

3. A nation-wide improvement in Technology

4. Depreciation rates are adjusted requiring businesses to fully depreciate assets in a 5-year horizon rather than a 3-year horizon.

5. Export increase < Import increase.

6. A decrease in personal income taxes will increase employment if the economy is operating in A. Region 3 of the AS function. B. Both Region 1 & Region 3 of the AS function. C. Neither Region 1 nor Region 2 of the AS function D. Region 1 of the AS function. E. None of the above

7. An increase in personal income taxes will decrease the price level if the economy is operating in A. Region 1 of the AS function. B. Both Region 1 & Region 3 of the AS function. C. Neither Region 1 nor Region 3 of the AS function D. Both Region 2 & 3 of the AS function. E. None of the above

8. An increase in interest rates will decrease the price level if the economy is operating in A. Region 3 of the AS function. B. Both Region 1 & Region 2 of the AS function. C. Neither Region 1 nor Region 3 of the AS function D. Any Region of the AS function. E. None of the above

9. If the U.S. economy is operating in Region 2 of the AS function and the value of the dollar rises relative to the Euro, then A. Unemployment will rise, and the price level will increase in the U.S. B. Unemployment will increase, and the price level will decrease in the U.S. C. Unemployment will decrease, and the price level will not change in the U.S. D. Both Output and the price level will increase in the U.S. E. None of the above

10. If the U.S. economy is operating in Region 2 of the AS function and the value of the dollar falls relative to the Euro, then A. Unemployment will increase, and the price level will increase in the U.S. B. Unemployment will increase, and the price level will decrease in the U.S. C. Unemployment will decrease, and the price level will not change in the U.S. D. Both Output and the price level will increase in the U.S. E. Both Output and the price level will decrease in the U.S.