Question 1:

Using the aggregate demand - aggregate supply (AD-AS) diagram, show how the four economic events would affect economic activity, the price and employment levels.  (Note: use a separate AD-AS diagram for each event)

(a) A decrease in personal income tax;

(b) An increase in workforce skills through special training programs;

(c) An decrease in exports;

(d) An increase in an economy's capital stock.

Question 2:

(a) Describe three problems of using fiscal policy to achieve a precise level of GDP.

(b) Why is frictional unemployment inevitable in an economy characterised by imperfect job information and non-zero job-search time?

(c) Is structural unemployment something macroeconomic policymakers should be concerned about?  How does it differ from cyclical unemployment?

Question 3: 

(a) Illustrate and explain with diagrams the difference between demand-pull and cost-push inflation;

(b) Provide (describe) two (2) causes of each type of inflation