Part -1:

1. Explain the shapes of the aggregate demand curve and the aggregate supply curve, and how they interact to determine real GDP and the price level for a nation

2. (Aggregate Demand and Supply) Review the information on demand and supply curves in Chapter 4. How do the aggregate demand and aggregate supply curves presented in this chapter differ from the market curves of Chapter 4?

3. (Sopply-G6le Economics)One supply-side measure introduced by the Reagan administration was a cut in income tax rates. Use an aggregate demand/aggregate supply diagram to show what effect was intended. What might happen it such a tax cut also shifted the aggregate demand curve?

Part -2:

1. Describe the two ways of computing GDP and explain why they are equivalent

2. (income Approach to GDP) How does Me income approach to measuring GDP differ from the expenditure approach? Explain the meaning at value added and its importance in the income ap-proach. Consider the folio/nag data for the selling pace at each stage in production of a 5 pound bag of flour sold by your local grocer. Calculate the final market value of the flour.

Stage of Production           Sale Price

Farme                              $0.30

Miller                                0.50

WholeSaler                        1.00

Grocer                                     1.50

2. (ExPermliture Approach to GDP) Given the following annual informstion about a hypothetical counUy. answer questions a through d.

3. Define a price index and explain why is it useful

4. (Consumer Price Index) Calculate a new consumer price index for the data in the following exhibit. Assume that current-year prices of Twinkles, fuel oil, and cable TV are 50.95/package. $1.25/gallon, and $15.00/month, respectively. Calculate the current year's cost of the market basket and the value of the current year's price index. What is this year's percentage change in the price level compared to the base year?

5. (Consumer Price Index)Given the following data, what was the value of the consumer price index in the base year? Calculate the annual rate of consumer price inflation in 2013 in each of the following situations:
a. The CPI equals 200 In 2012 and 240 in 2013.
b. The CPI equals 150 in 2012 and 175 in 2013.
c. The CPI equals 325 in 2012 and 340 in 2013.
d. The CPI equals 325 in 2012 and 315 in 2013.