Homework 1 -

Question 1 -

a) Draw the Aggregate supply (AS) curve. On this curve you must demonstrate maximum capacity, wage-price spiral, the range of full employment and unemployment, please explain what happen to the inflation rate along the AS curve.

b) Explain wage-price spiral using two to three sentences.

c) Suppose the economy experienced a negative shock such as a hurricane, how will this affect the aggregate supply curve, please demonstrate this graphically?

d) Suppose there is an increase in the population how will this affect the AS curve, please demonstrate this graphically and explain your answer?

Homework 2 -

Question 1 - In the Keynesian Model assume the following information: C = 200 + 0. 5Y_d

Now suppose C = 200 + 0. 5Y_d, I = 30, G = 20 note that I, G, represents private investment, Government spending, respectively.

a) Find the AD curve and graph it for Y = 0, 10, 20

Now suppose C = 200 + 0. 5Y_d, I = 30, G = 20, T = 10 here Y_d = Y-T-TR. Note that I, G, T, represents private investment, Government spending and lump-Taxes (a flat amount), respectively. Assume that TR = 0.

b) Find the AD curve and plot it on the same graph in part 'a' for Y = 0, 10, 20. Please explain any differences that you have observed when compared to part 'a'.

Now suppose C = 200 + 0. 5Y_d, I = 30, G = 20, T = tY here Y_d = Y - tY - TR. Note that I, G, T, represents private investment, Government spending, respectively. Note that "t" is a proportional tax (it is a percentage not a flat amount). Assume that t = 0.2.

c) Find the AD curve and plot it on a new graph for Y=0, 10, 20. Please explain any differences you have observed when compared to part 'a' and 'b'.

For HW2, Question 1, Yd=Y-T+TR NOT Yd=Y-T-TR.