Explain how the following changes in aggregate demand or short-run aggregate supply, other things held unchanged, are likely to affect the level of total output and the price level in the short run.

a. An increase in aggregate demand

b. A decrease in aggregate demand

c. An increase in short-run aggregate supply

d. A reduction in short-run aggregate supply

2. Explain why a change in one component of aggregate demand will cause the aggregate demand curve to shift by a multiple of the initial change.

3. Use the model of aggregate demand and short-run aggregate supply to explain how each of the following would affect real GDP and the price level in the short run.

a. An increase in government purchases

b. A reduction in nominal wages

c. A major improvement in technology

d. A reduction in net exports