1. Will expansionary monetary policy cause crowding out of investment in a largecountry in a global economy with flexible exchange rates? Will expansionarymonetary policy cause crowding out of investment in a large country in a globaleconomy with fixed exchange rates? Answer both questions using diagrams. 2. All other things remaining equal, which of the following changes would cause theAD curve to become steeper? To become flatter?a) an increase in the interest-rate responsiveness of autonomous consumptionb) an increase in the interest-rate responsiveness of real money demandc) an increase in the marginal tax rated) an increase in the marginal propensity to importe) an increase in the income responsiveness of real money demandAll other things remaining equal, which of the following changes would cause theAD curve to move to the right? To the left? Leave it unchanged?f) an increase in autonomous net exports (NXa)g) an increase in the nominal money supplyh) a decrease in business confidencei) an increase in autonomous taxesj) an increase in the interest rate 3. Explain with words and diagrams how each of the following events affects the SAScurve.(a) the technology improves(b) the nominal wage rate increases(c) the quantity of non-labor inputs declines 4. Predict, with the aid of the IS-LM and the AS-AD models, the short-run and longrun effects of an increase in the money supply. 5. The IS and LM curves for the economy have the following equations:IS : r ( Ap / 40) (1/(40k ))YLM : r 0.01Y 0.01M s / Pwhere k 2.5, Ap 2, 000, M s 3, 200, and P 0.8 .(a) Find the equilibrium level of real output and the equilibrium interest rate.(b) What is the equilibrium real output when the price level equals 1.0? When itis 1.2? Plot the aggregate demand curve based on your answers to parts (a) and(b).
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