1. Describe what the effect on aggregate demand would be, other things being equal, if

a. exports increase.

b. both imports and exports decrease.

c. consumption decreases.

d. investment increases.

e. investment decreases and government purchases increase.

f. the price level increases.

g. the price level decreases.

2. Fill in the blanks in the following explanations:

a. The wealth effect is described by the following: An increase in the price level leads to a(n) ______ in real value of money, which leads to a(n) ______ in consumer spending, which leads to a(n) ______ in RGDP demanded.

b. The interest rate effect is described by the following: A decrease in the price level leads to a(n) ______ in the interest rate, which leads to a(n) ______ in investments, which leads to a(n) ______ in RGDP demanded.

c. The foreign trade effect is described by the following: An increase in the price level leads to a(n) ______ in the demand for domestic goods, which leads to a(n) ______ in RGDP demanded.

3. How will each of the following changes alter aggregate supply?

Change	Short-run aggregate supply	Long-run aggregate supply
An increase in aggregate demand
A decrease in aggregate demand
An increase in the stock of capital
A reduction in the size of the labor force
An increase in input prices (that does not reflect permanent changes in their supplies)
A decrease in input prices (that does reflect permanent changes in their supplies)
An increase in usable natural resources
A temporary adverse supply shock
Increases in the cost of government regulations

4. Use the accompanying diagram to answer questions a and b (below).

LRAS SRAS Price Level PL ELA AD 0 RGDP NR Real GDPLRAS Price Level RGDPNR RGDP\fLRAS SRAS Price Level PL ELA AD O RGDP MR Real GDP