1. Explain why the equilibrium level of national income is at the point where the real expenditures curve crosses the 45-degree line.

2. Draw a real expenditures curve on a graph showing a recessionary gap. Explain what happens to real GDP when it is initially to the right of the equilibrium point and why. Indicate two public policies that would be appropriate for addressing this situation. Explain their impact on your graph.

3. Draw a real expenditures curve on a graph showing an inflationary gap. Explain what happens to real GDP when it is initially to the left of the equilibrium point and why. Indicate two public policies that would be appropriate for addressing this situation. Explain their impact on your graph.

4. Using a simplified circular flow diagram (excluding government and net exports), explain why total expenditures can be greater or less than the value of production. How will producers respond to each of these situations and how will their responses affect real GDP? How can intended savings and intended investment differ, while actual saving and actual investment are always the same?

5. Explain the different conditions that can make the aggregate supply curve shift to the right. Show this shift on a graph. What impact will the shift have on equilibrium GDP?

6. Explain with the aid of a graph why a "self-correcting" recessionary gap cannot be relied upon to bring an economy out of recession.

7. What are the problems that make fiscal policy difficult to use for stabilization purposes?

8. Giving examples of "supply-side" tax cuts, explain how they are supposed to work and the reasons for being skeptical about their usefulness. 

9. Explain why any autonomous increase in spending will be magnified by the multiplier. Draw a graph showing such an increase and the resulting increase in real GDP.