Question: a)Using the AD-AS aggregate model, explain whether each of the following events shifts the short-run aggregate-supply curve, the aggregate demand curve, both, or neither. For

a)Using the AD-AS aggregate model, explain whether each of the following events shifts the short-run aggregate-supply curve, the aggregate demand curve, both, or neither. For each event that does shift a curve, draw a diagram to illustrate the effect on the national economy and state the component of aggregate demand that changes (consumption, investment, government purchases, or net exports).

i.Due to uncertainties in the future economy, Malaysian households decide to spend less from their earned income.

(7 marks)

ii.A recession overseas causes foreigners to buy less of Malaysian products.

(7 marks)

b)From the answer in part (a), explain whether there is an inflationary gap orrecessionary gap that happens. In view of the situation, what the type of monetary policy can the Malaysian government carry out to stabilize the economy back intolong-run equilibrium? Explainthree (3) monetary policy toolsthat the government can use to influence the economy in pursuit of long-term macroeconomic goals, andgive suitable examples.Use the AD-AS graph to explain how the policy shifts the AD or AS curves.

(11 marks)

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