1. Describe the impact of rising interest rates on consumer spending.

2. When the economy is operating at full employment, why is an increase in aggregate demand not helpful to the economy?

3. When the economy is hit with a supply shock, such as rising prices for energy, food, or raw materials, why is this doubly disruptive and harmful to the economy?

4. Explain why the aggregate supply curve is positively sloped during the short run and vertical in the long run.

5. Explain how imports and exports affect aggregate demand.

6. List some examples of factors that will shift the long-run aggregate supply curve.

7. There is little doubt that computers and the Internet have changed the economy. Information technology (IT) can boost efficiency in nearly everything: Markets are more efficient, IT is global, and IT improves the design, manufacture, and supply chain of products we produce. Use the aggregate demand and supply framework discussed in this chapter to show the impact of IT on the economy.

8. Unemployment can be caused by a reduction in aggregate demand or short-run aggregate supply. Both changes are represented by a leftward shift in the curves. Does it matter whether the shift occurs in aggregate demand or short-run aggregate supply? Use the AD/AS framework to show why or why not.

9. Why is cost-push inflation a more difficult problem for policymakers than demand-pull inflation?

10. Why is consumer confidence so important in determining the equilibrium level of output and employment?

11. As the Japanese yen appreciated in value during the 1980s and 1990s, more Japanese auto companies built manufacturing plants in other parts of Asia and in the United States. What impact did this have on net exports for the United States? Why did Japanese automakers build plants in the United States? Were the reasons similar to the reasons that American firms build plants (or establish offshore production) in China and other parts of Asia?

12. Some advocates have suggested that the United States should move to a universal health care plan paid for at the federal level, like Medicare, which would be funded out of general tax revenues. Such a plan, it is argued, would guarantee quality health care to all. Ignoring all the controversy surrounding such a plan, would the introduction of universal health care paid for from tax revenues have an impact on short-run aggregate supply? On long-run aggregate supply? Why or why not?

13. In 2016 a worldwide health scare resulted from the rapid spread of the mosquito-borne Zika virus, which was alleged to cause birth defects in infected pregnant women. Brazil was the epicenter of the epidemic, which also hosted the Summer Olympic Games that same year. Explain how a health epidemic experienced in Brazil affected its aggregate demand and/or aggregate supply.

14. In late 2015 congressional House Speaker Paul Ryan helped pass a major budget bill signed by President Obama that eliminated many of the “sequester” provisions, or automatic spending cuts, that were implemented in 2013 after significant political gridlock. Many economists applauded the elimination of the spending cuts because they believed the cuts increased the risk of another recession when the economy was still in recovery. Using the AD/AS model and what you know about the spending multiplier, explain why economists would come to this conclusion.

15. In the figure, the economy is initially in equilibrium at full employment at point e. Assume that consumption falls by 100, leading to a shift in aggregate demand from AD₀ to AD₁.

16. Use the table and grid below to answer the following questions:

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17. According to By the Numbers, if the average price of a barrel of oil is $50, and total aggregate demand in 2015 was $18 trillion in the United States and $11 trillion in China, what percentage of aggregate demand did oil consumption represent in each country?

18. According to By the Numbers, by what percentage did M&E revenues increase from 2012 to 2015? How does M&E growth compare to the percentage growth in overall aggregate output over this time period (which was approximately 2-3% per year)?