1. a) Use a single Powerpoint slide to build a standard AD-AS diagram, as seen in the lectures. Use textboxes to label the axes and all the essential curves, and key points such as equilibrium income and the price level. Note that equilibrium output should be labeled Yn, and equilibrium price should be labeled P1 = Pe = PT (which tells us that the initial price is the target price set by the Central Bank, and this is the price level expected by wage earners and firms). Now use a textbox to briefly explain why the AS curve slopes up. (Supply curves generally slope upwards, but why in particular does the AS curve slope upwards? It's an important but simple point, dealt with in the lectures. b) Using the same slide, explain in a textbox what will happen if output rises above Yn.
2. Now draw a full IS-LM / AD-AS model, with the IS-LM axes above the AD-AS, on a single slide (best to have your slide in ‘Portrait' orientation for this). Copy it once, to help you with Question 3. Now trace through with animated curves and textboxes as appropriate the effect of a fall in exports, assuming no change in the Central Bank's Monetary Policy settings (in other words, no change in its price target). You will be showing what happens in the Short Run, and the final state of the economy in the Medium Run. What is the level of output and the price level in the Medium Run. What has replaced the lost exports in Aggregate Demand?
3. Now show the effect of an expansionary Monetary Policy, again with the animated curves running in correct sequence and explained briefly with textboxes. What is the level of output and the price level in the Medium Run?