Question 1. What is the effect of an increase in the quantity of money? What is the difference between real variables and nominal variables? Are these variables affected by the quantity of money? If so, how?
Question 2. What is the difference between the real exchange rate and the nominal exchange rate? If the nominal exchange rate goes from 120 to 160 pesos per dollar, what has happened to the value of a dollar?
Question 3. Why does the aggregate demand curve slope downward? Give at least three reasons and examples when addressing this question. Identify an event that would shift the AD curve and which direction the AD curve will shift.
Question 4. Assume that the federal government increases spending on public works programs, such as highway construction, by $40 billion. How does this change in spending affect the aggregate demand curve? Explain why the shift may be higher or lower than the original $40 billion.