141) Suppose that the economy of Wetland shown in the following figure is in full-

employment equilibrium and the present nominal wage is $800 per week

a) What is the real wage (in base year prices)?

b) Suppose that aggregate demand increases by $100. At the new equilibrium, what will be the
new value of the real wage rate?
c) As a result of the change in b), suppose the nominal wage increases, causing aggregate supply
to decrease by $100. At the new equilibrium, what will be the new real wage rate?
d) At the new equilibrium in c), what is the value of the nominal wage rate?

142) Why is the aggregate supply curve upward sloping?

143) "A change in aggregate supply implies a change in Potential GDP and a change in
Potential GDP implies a change in aggregate supply." Evaluate this statement.

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144) Assume that an economy is at full employment.

a) Using an AD/AS diagram, illustrate the economy at full employment.

b) Now suppose there is an increase in exports. Explain and illustrate in the same diagram (as
part a), the effect of this increase.
c) Explain how the economy will revert back to full employment by itself.

145) Assume that an economy is at full employment.

a) Using an AD/AS diagram, graphically illustrate the economy at full employment.

b) Now suppose there is a decrease in imports. Explain and illustrate in the same diagram (as part
a), the effect of this decrease.
c) Explain how the economy will revert back to full employment by itself.

146) Assume that an economy is at full employment.

a) Using an AD/AS diagram, graphically illustrate the economy at full employment.

b) Now suppose there is an increase in imports. Illustrate in the same diagram (as part a), the
effect of an increase in imports.

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147) What are the components of aggregate demand?

148) Assume that the economy is at full employment. Now suppose there is an increase in
consumption. At the new equilibrium,

a) will there be an output gap? What type?

b) what is the effect on the price level?
c) what is the effect on the level of Real GDP

149) Assume that the economy is at full employment. Now suppose a decrease in investment
spending. At the new equilibrium,

a) will there be an output gap? What type?

b) what is the effect on the price level?
c) what is the effect on the level of Real GDP?

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150) Assume that the economy is at full employment. Now suppose there is an increase in the
size of the labour force. At the new equilibrium,

a) Will there be an output gap? What type?

b) What is the effect on the price level?
c) What is the effect on the level of Real GDP?

151) Assume that the economy is at full employment. For each of the following events
determine whether there will be an output gap. If yes, what type?

a) Increase in aggregate demand.

b) Increase in aggregate supply.
c) Increase in long-run aggregate supply.
d) Decrease in long-run aggregate supply.

152) Explain why a decrease in nominal wages does not necessarily imply a decrease in real
wages.

153) What are the three determinants of consumption?

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154) Assume there is an inflationary gap in the economy. If investment spending increases,
what will happen to the inflationary gap?

155) The following table shows the aggregate demand and aggregate supply schedules for the
economy of Saint Andrews
Aggregate Quantity Demanded Price Index Aggregate Quantity Supplied
$200 80 $110
180 90 120
160 100 130
140 110 140
120 120 150
100 130 160

a) What are the equilibrium values of price and Real GDP?

b) If the price level were 100, would there be a surplus or a shortage? How much? Explain how
the economy will revert back to equilibrium.

156) Explain the modern view of the aggregate supply curve.

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