1. The table below shows the aggregate demand and aggregate supply schedules for an economy. Based on the table, answer the following questions.

Real Domestic Output

Price Level DEMAND SUPPLIED

1 2 3 4

250 1400 1900 2000

225 1500 2000 2000

200 1600 2100 1900

175 1700 2200 1700

150 1800 2300 1400

125 1900 2400 1000

100 2000 2500 500

(a) On a graph paper, plot the aggregate demand curve shown in columns (1) and (2) in the above table, and label this curve as 1. (2 marks)

(b) On the same graph paper, plot the aggregate supply curve shown in columns (1) and (4) in the

above table, and label this curve as .

(c) What is the level of equilibrium real domestic output and price level?

(d) Now assume that aggregate demand changes. Use columns (1) and (3) to plot the new demand curve; and label this curve as 2.

(e) What is the new level of equilibrium real domestic output and price level?

2. The table shows the monetary aggregates released by the Central Bank of Country A.

Monetary Aggregate

Currency in circulation 75,000

Coins 30,000

Demand/current deposits of the private sector 100,000

Savings and deposits in commercial banks 200,000

NCD, repo and BNM certificates 180,000

Deposits placed with other banking institutions 17,500

Calculate the value of

(a) Paper money 2 marks

(b) M1 2 marks

(c) M2 2 marks

(d) M3 2 marks

(e) Narrow near money 2 marks

3. For each of the following statements, illustrate (by sketching diagrams) and explain the expected effects on the equilibrium price and output for aggregate demand and aggregate supply in the short run, other things remaining constant:

(i) Implementation of expansionary fiscal policy. (2 marks)

(ii) A decrease in investments. (2 marks)

(iii) An increase in labor productivity. (2 marks)

(iv) An increase in nominal wage rates. (2 marks)

(v) Implementation of contractionary monetary policy. (2 marks)