(03.01–03.08, 04.07 HC) A country is operating below full employment. Illustrate this economy on a fully-labeled aggregate demand—aggregate supply model. Include aggregate demand, short-run aggregate supply, and long-run aggregate supply. Label the short-run equilibrium price PE and the short-run equilibrium output YE. Label the full-employment level of output YF. If the government and central bank do not intervene, how would this economy adjust in the long run? Explain. Illustrate the process of part (b) on your graph from part (a). The government decides to use fiscal policy to correct the economic situation in part (a). Assume the difference between the short-run and long-run equilibrium output is worth $80 billion, and the marginal propensity to consume is 0.9. Calculate one specific and effective fiscal policy action the government could take. What would be the short-run impact of the government’s action on the aggregate price level? What would be the short-run impact of the government’s action on the potential output of the economy? Will the long-run equilibrium price level if the government intervenes be less than, equal to, or greater than the long-run equilibrium price level without intervention? Show the impact of the government intervention from part (d) on the equilibrium real interest rate on a fully labeled loanable funds market graph. Will the long-run aggregate supply curve move as a result of the change from part (h)? Explain.

(04.05 MC) Use the graph to answer the question that follows.In this graph, the demand for money shifted from MD to MD′. Which of the following could have caused this shift?

(02.01 LC) How does a circular flow model illustrate GDP?

(02.04 MC) If the price of a basket of goods in the given year is $56 and the price of the basket of goods in the base year is $70, then what is the consumer price index (CPI) for the given year?

(02.04 HC) Use the table to answer the question that follows. Year Price of Good A Quantity of Good A Price of Good B Quantity of Good B 1 $10 5 $12 6 2 $15 5 $12 7 The economy produced only two goods with the prices and quantities of each good for year 1 and year 2 shown above. Which of the following is true?

(02.05 MC)This question refers to the following excerpt.”Early American churchmen and churchwomen soon discovered that if they wanted to practice their beliefs unmolested in a diverse society, they had to grant the same right to others. This wisdom did not come easily. Yet over time, along with bickering and competition among denominations, there also were bargains, accommodations, and compromises. In realizing that no single doctrine of faith could dominate Middle Colony society, a heterogeneous people learned, not to cherish their differences, but, at least, to tolerate and live with them.”Source: Patricia U. Bonomi, historian, “Religious Pluralism in the Middle Colonies,” 2008The ideas about religious diversity described in the excerpt were later enhanced by developments such as the

(02.01 MC) Which of the following is true for the gross domestic product?

(02.04 MC) Which of the following is true about the consumer price index (CPI) as an economic indicator?

(02.02 LC)What made the colony of Maryland distinct from the other British colonies?

(04.07 MC) Use the graph to answer the question that follows.Assuming that the economy is initially in equilibrium at rate of interest, ‘R,’ and quantity of loanable funds, ‘Q.’ What will be the new rate of interest and quantity of loanable funds if the marginal propensity to save increases?