This assignment is for Module 7 and covers Chapter 26 from the text. Students should answer all questions. All questions
are of equal value.
Question 1
a) Explain and use a diagram to illustrate the short run and long run aggregate supply curve.
b) Explain and use a diagram to illustrate the impact of an increase in the money wage rate on the short run
aggregate supply curve.
c) What could bring about a change in the money wage rate?
d) Define stagflation.
e) Use an AS/AD diagram to illustrate how a rise in oil prices would produce stagflation.
Question 2
a) Identify the components of aggregate demand (AD).
b) Give one example of spending for each component of AD.
c) Define fiscal policy.
d) Define monetary policy.
Question 3
a) Define a recessionary gap.
b) Use an AS/AD diagram to illustrate a recessionary gap.
c) Define an inflationary gap.
d) Use an AS/AD diagram to illustrate an inflationary gap.
Question 4
Explain and illustrate with two separate diagrams, the short run and long effects of an increase in aggregate demand that
creates an inflationary gap.
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