1. According to the book/learning module:

a) What is potential GDP why is it important?

2. Deriving the AD curve

Suppose the monetary policy curve is given by r = 1.5 + 0.75, and the IS curve is given by Y=12-r.

a)Calculate an expression for the aggregate demand curve.

b)Calculate the real interest rate and aggregate output when the inflation rate is 1%, 3%, and 5%.

c)Draw graphs of the IS, MP, and AD curves, labeling the points from part (b) on the appropriate graphs.

3.Deriving the AD curve (Cont.)

a) What is the general equation of the IS Curve?

b) What is the general equation of the MP Curve?

c) Given the general equation of the IS Curve and the general equation of the MP curve, please derive the general equation of the AD Curve.