Econ 98-Chiu Aggregate Demand and Supply Worksheet Spring 2004Name & SID: Date:1. Draw the aggregate demand curve (AD1). Label your axes clearly.2. Explain why the aggregate demand curve is downward sloping. In other words, why does aggregate output fall when price levels rise? Assume G, T, and Ms are constant.3. Draw the money market and Keynesian-cross graphs to explain your answer in question 2.Page 1 of 5Econ 98-Chiu Aggregate Demand and Supply Worksheet Spring 2004Name & SID: Date:4. The Fed buys government securities (bonds). Show graphically the effects on the aggregate demand curve. Label AD3.5. The Fed sells government securities (bonds). Show graphically the effects on the aggregate demand curve. Label AD4.6. Congress raises government spending (G). Show graphically the effects on the aggregate demand curve. Label AD5.7. Congress lowers government spending (G). Show graphically the effects on the aggregate demand curve. Label AD6.Page 2 of 5Econ 98-Chiu Aggregate Demand and Supply Worksheet Spring 2004Name & SID: Date:8. Congress raises net taxes (T). Show graphically the effects on the aggregate demand curve. Label AD7.9. Draw the aggregate demand curve (AD1) and aggregate supply curve (AS1). Label your equilibrium price level (P1) and aggregate output (Y1).10. Explain why an increase in aggregate demand when the economy is operating at low levels of output (e.g. a recession) is likely to result in an increase in output with little or no increase in the overall price level.11. Explain why an increase aggregate demand when the economy is operating at high levels of output is likely to result in an increase in output with large increases in the overall price level.Page 3 of 5Econ 98-Chiu Aggregate Demand and Supply Worksheet Spring 2004Name & SID: Date:12. OPEC raises oil prices drastically without warning. Show graphically the effects on the aggregate supply curve. Label AS2. Label the economy’s new equilibrium output (Y2) and price level (P2). Label AD0, AS0, Y0, P0 as your initial conditions. Assume the Fed and Congress does nothing.13. Technological innovation drastically reduces the cost of production in all industries. Show graphically the effects on the aggregate supply curve. Label AS3. Label the economy’s new equilibrium output (Y3) and price level (P3). Label AD0, AS0, Y0, P0 as your initial conditions. Assume the Fed and Congress does nothing.Page 4 of 5Econ 98-Chiu Aggregate Demand and Supply Worksheet Spring 2004Name & SID: Date:14. OPEC raises oil price drastically without warning. The economy is plagued by unemployment. Congress increases government spending and decreases net taxes in order to stimulate the economy. Show the effects of both the supply shock and expansionary fiscal policy on the AD-AS diagram. Label AD0, AS0, Y0, P0 as your initial conditions before the cost shock and expansionary policies. Label AD1, AS1, Y1, P1 as your final conditions.Page 5 of
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