Principles of Macroeconomics

  Answer the questions below, using 100 words or more.

1. Pick two determinants of aggregate demand that you believe have the greatest impact on macroeconomic performance, and do the same for aggregate supply.  Justify your choices with examples for each.

2. List and Explain the three reasons the aggregate-demand curve slopes downward.

3. What is the difference between contractionary fiscal policy and expansionary fiscal policy? Which is the more appropriate to use today? Explain your answer.  

 4. What is the difference between the consumption multiplier and the money multiplier in terms of how each influences aggregate demand?

5. Suppose the Federal Reserve's policy is to maintain low and stable inflation by keeping unemployment at its natural rate. However, the Fed believes that the natural rate of unemployment is 4 percent when the actual natural rate is 5 percent. If the Fed based its policy decisions on its belief, what would happen to the economy? How might the Fed come to realize that its belief about the natural rate was mistaken? 

6. Give an example of a government policy that acts as an automatic stabilizer. Explain why the policy has this effect. 

7. Consider the theory of liquidity preference. How does it help explain the downward slope of the aggregate-demand curve?

 8. Name two macroeconomic variables that decline when the economy goes into a recession.