Q1. a) What was the rationale for building aggregate demand-aggregate supply model while aggregate expenditures model was already available to study the macroeconomy?(5) b) How 'foreign purchases effect' helps us to explain the slope of AD.(3)

c) What is Keynesian cross? How aggregate demand and output gap are related. Explain in the

light of Keynesian cross diagram.(12)

Q2. a) Consider an economy facing demand pull inflation, explain the determination of equilibrium output and prices under i) Keynesian regime, ii) Classical regime, and iii)

Intermediate regime(10)

b)Consider an initial scenario of recession in the economy. The following information is provided:

Recessionary gap = - $20million Marginal propensity to save = 0.25

How much should be the enhancement in government spending to move the economy back to

potential output level?(3)

c)What is the role of built-in-stabilizers in moderating business cycles? Explain it through

diagram.(4) d) List down factors that give rise to economic growth.(3)

Q 3:a) Explain when a restrictive monetary policy is appropriate for an economy. Elaborate the

working of this policy through the three-panel diagram. (10)

b) Refer to the news article "who damaged the economy", highlight the key flaws in the policymaking in the context of Pakistan economy.(5)

c)Briefly discuss any two of the four debates on the macroeconomic policy covered in the class.