1. Using short run aggregate supply and aggregate demand analysis, discuss how the following will affect the aggregate level of output and the price level in the economy. Use a SRAS curve (not the LRAS). You need to determine whether the ADorSRAS curve will shift, in which direction it will shift, and how this will affect aggregate output and the price level.

a. An increase in labor productivity in the economy, other things unchanged.

b. When the central bank (the Fed) reduces the quantity of money in the economy, other things unchanged.

2.In your own words explain what the Keynesian income "multiplier" is

3.Describe one tool used by the Federal Reserve (reserve requirements, open market operations, or the discount rate) and state how the Fed would use that tool to counteract rapidlyrising prices.

4.Name one thing that causes economic progress and explain how it causes economic progress (Hint: a shift in the SRAS is not "economic progress").

5.If the required reserve ratio is 2% and $500 of new bank reserves are created by the Federal Reserve, what is the maximum potential increase in the quantity of money in the economic system (not just the money created by the banking system but the total money supply)?

Why might the money supply not increase by the maximum possible amount?

Make sure you show your calculations and answer both parts of this question.Use the following equation to answer this question:

Maximum Potential Increase in the Money Supply = (1/r) x Monetary Base, where r is the required reserve ratio.