1. Suppose on Monday, April 23, 2012 you withdraw $1,000 from your savings account and put the money under the mattress.a. Briefly explain how your action affects the level of M1 and M2 measured the same day.b. Briefly explain how this will affect money supply over time.
2. By using aggregate supply and aggregate demand curves to illustrate your points, discuss the impacts of the following events on theprice level and on equilibrium real GDP (Y) in the short run:a. An expansionary monetary policy during a period of high unemployment and excess industrial capacity.b. An increase in the price of oil and a disruption in oil deliveries caused by a war in the Middle east.c. A tax cut holding government purchases constant when the economy is operating at near full capacity and output is at its potentiallevel.
3. In 2009, a fictional economy is in a long run macroeconomic equilibrium. Potential real GDP is $100 million and the GDP deflator is ata level of 100. Between 2009 and 2011, potential output grows by 4%, however unexpectedly high investment and net exports raise theaggregate demand by more than 4% and the economy experiences an inflationary gap. In a diagram, illustrate how these events affectthe Aggregate Demand and Aggregate Supply curves an AD/AS and discuss how, even without any intervention on the part of the government or the central bank, the economy would self adjust over the following few years.