1. Explain, in your own words, each of the three reasons why the Aggregate Demand curve (AD) is negatively sloped. Be sure to use the determinants of AD in your explanation.
2. Explain, in your own words, the two reasons why the Aggregate Supply curve (AS) is positively sloped.
3. Suppose a large oil reserve is discovered in South Dakota. Does this affect the AS curve for the long-run, short-run, or both? Explain.
4.
(a) What is meant by a “recessionary gap?”
(b) What are the two main causes of a recessionary gap? Explain how each of these events cause unemployment.
5.Compare and contrast the short-run and long-run AS curves for both the Classical and Keynesian models. Include in your explanation WHY the AS curves look different in the two different theories.
6. Suppose a war causes a sudden, large increase in government spending.
(a) What happens to both prices and GDP in the short-run Classical Model? Do they increase decrease or stay the same? Explain.
(b) What happens to both prices and GDP in the short-run Keynesian model? Do they increase decrease or stay the same? Explain.
7. Look up current statistics for inflation and GDP in the economy. Use these statistics to determine what phase of the business cycle the economy is currently in. Be specific as to what is going on with the aggregate supply and/or aggregate demand curves.
