Short Answer Questions will ask you to look at different scenarios and policy responses. You will need to illustrate the situations graphically using the models we have studied

Aggregate Demand-Aggregate Supply (AD-AS) model topics:
1) Draw a typical AD-AS diagram with the AD, SRAS and LRAS curves. Label the long-run equilibrium aggregate price level and equilibrium real GDP.

2) Determine and illustrate the effect of a supply or demand shock by shifting the AS or AD curve. (Hint: You will need to know what factors shift the AS and AD curves)

3) Determine the new (short-run) equilibrium aggregate price level and equilibrium real GDP due to a supply or demand shock.

4) From an AS-AD diagram, identify whether the economy is in a recessionary gap or inflationary gap.

5) Determine and show how monetary and/or fiscal policies can move the economy back to long-run equilibrium if it is facing a recessionary or inflationary gap.

6) Show how an open-market operation shifts the AD curve; show how the equilibrium aggregate price level and equilibrium real GDP change due to the Fed action.

Money Supply and Monetary policy topics:
7) Show the effect of an open-market operation on the balance sheet of the Fed and the balance sheet of a bank

8) Calculate excess reserves for a bank and the most the money supply could increase due to an open-market purchase.

9) Draw a money market diagram and determine the shift of the money supply curve due to an open-market operation; determine if the equilibrium interest rate rises or falls. Also be able to determine what happens to investment spending and consumption spending due to the open-market operation.

The Short-Run and Long-Run Phillips Curve topics:
10) On a short- and long-run Phillips curve diagram, show the effect of a supply shock.
11) On a short- and long-run Phillips curve diagram, show the effect of a demand shock.