Identify the ways in which each of the following determinants would have to change if each was causing a decrease in aggregate demand: consumer wealth, consumer expectations, business taxes, national income in countries abroad, exchange rates.

1. Identify the ways in which each of the following determinants would have to change
if each was causing a decrease in aggregate demand: consumer wealth, consumer
expectations, business taxes, national income in countries abroad, exchange rates.

2. What are the three time horizons used to categorize aggregate supply? What is the
difference between the immediate short-run and the short-run aggregate supply?

3. Describe each of the following outcomes in terms of shifts in aggregate demand or
aggregate supply curves.
(a) A recession deepens while the rate of inflation increases
(b) The price level rises sharply while real output and employment increase
(c) The price level falls, but the unemployment rate rises
(d) Real output rises, unemployment rate falls, and the price level rises

4. What are two underlying factors affecting input prices? How does a change in input
prices affect aggregate supply?

5. Differentiate between “demand-pull” and “cost-push” inflation in the basic aggregate
demand and aggregate supply model.

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