).Define macroeconomics? What are the main challenges of macroeconomic policy? What are the main tools of macroeconomic policy?

(b).The national accounts of Parchment Paradise are kept on (you guessed it) parchment. A fire destroys the statistics office. The accounts are now incomplete but they contain the following data:

GDP (income approach): $2,900

Consumption expenditure: $2,000

Indirect taxes less subsidies: $100

Net operating surplus: $500

Investment: $800

Government expenditure: $400

Wages: $2,000

Net exports: -$200

(i). Calculate GDP (expenditure approach) and depreciation.

(ii). Calculate net domestic income at factor cost and the statistical discrepancy.

[ 3 + 2 Marks ]

Q.7 (a). Explain how does an economy achieve short-run equilibrium using AD-AS model.

(b). The following events have occurred at times in the history of the United States:

The world economy goes into an expansion.

U.S. businesses expect future profits to rise.

The government increases its expenditure on goods and services in a time of war or increased international tension.

(i). Explain for each event whether it changes short-run aggregate supply, long-run aggregate supply, aggregate demand, or some combination of them.