MB 3101 ECONOMICS

TUTORIAL WEEK 10

1. State whether the following events would shift the AD curve to the right, to the left, or not at
all:
a. Foreign income decreases.
b. The exchange rate value of rupiah falls.
c. Consumers expect lower income in the future.
d. The distribution of income shifts toward wealthier families that purchase more imported
goods.
e. Home heating oil prices rise, so people switch to natural gas.
f. Indonesian price level rises as expected.

2. What will happen to the position of the SAS curve in the following circumstances:
a. Productivity rises by 3 percent and wages rise by 3 percent.
b. Productivity rises by 3 percent and wages rise by 5 percent.
c. Productivity rises by 3 percent and wages rise by 1 percent.

3. Demonstrate the following two cases using the AS/AD model. What will happen in the long run
if government does nothing?
a. Inflationary gap.
b. Recessionary gap.
c. What could government do in (a) and (b) to get the real output in its potential?