1. Using the IS / MP model analyse how a lower bound on real interest rates might cause the economy.

1. Using the IS / MP model
analyse how a lower bound on real interest rates might cause the economy to
enter a deflationary spiral following a significant decrease in aggregate
expenditure.

2. What would cause (a) a steep ADI
curve; (b) a gently sloping ADI curve? Compare the short-run and
long-run effects of (i) a temporary adverse supply shock and (ii) a permanent
supply reduction under each of (a) and (b).

3. Under what circumstances would
a rightward shift in the ADI curve lead to a permanent increase in real national
income?

4. Using the IS / LM model,
under what circumstances

1. Using the IS / MP model
analyse how a lower bound on real interest rates might cause the economy to
enter a deflationary spiral following a significant decrease in aggregate
expenditure.

2. What would cause (a) a steep ADI
curve; (b) a gently sloping ADI curve? Compare the short-run and
long-run effects of (i) a temporary adverse supply shock and (ii) a permanent
supply reduction under each of (a) and (b).

3. Under what circumstances would
a rightward shift in the ADI curve lead to a permanent increase in real national
income?

4. Using the IS / LM model,
under what circumstances will (a) a rise in investment and (b) a rise in money
supply cause a large rise in national income?

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