07 Jun Question Week 5 Tutorial 4 This is a tutorial test week and the
Question
Week 5 Tutorial 4
This is a tutorial test week and the test will be done at the beginning of the
tutorial. Your tutor will pick one question from questions 3, 4, 5, 6 and 7. Your
answers may require definitions, graphs/diagrams, analysis and explanation.
You will get 15 minutes to answer and worth 5%.
1. Using appropriate diagrams, reconcile the aggregate expenditureincome model
and the aggregate demand curve of the aggregate demandaggregate supply
model.
2. State the effects that each of the following may have on aggregate demand or
short-run and long-run aggregate supply curves:
(a) a widespread fear of depression among consumers
(b) the sale of wheat to the Russian Federation
(c) a tax leading to a 5c per litre increase in petrol prices
(d) an increase in the money supply
(e) a cut in Commonwealth spending for higher education
(f) an increase in interest rates
(g) the discovery of cheaper energy sources
(h) tax reductions.
3. An increase in demand that increases real domestic output towards the fullemployment level may generate instability in the price level. Explain why.
4.
(a) Draw an aggregate demandaggregate supply diagram where equilibrium
occurs below the full-employment level of output.
(b) Now show the impact of a leftward shift in the aggregate supply curve.
(c) What developments might cause such a shift?
5.
Using diagrams, explain how an upward-sloping aggregate supply curve
might weaken the multiplier effect.
6. Use an aggregate demandaggregate supply diagram to distinguish between
demand-pull and cost-push inflation.
7. Unemployment can be caused by a leftward shift of aggregate demand or a
leftward shift of aggregate supply. The first problem may be easier to resolve. Do
you agree? Explain your reasoning.
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