Economics 470

Fall 2011

Homework 5

Due 11/17

1. Derive the AE curve.

2. What makes the AE curve flatter or steeper?

3. What causes the AE curve to shift?

4. What is the MP curve?

5. Explain the difference between the MP curve used in the book and the MP curve used in class.

6. Show and explain how the MP curve shifts when there is a change in the inflation rate.

7. Using the MP curve from class, derive the dynamic AD curve.

8. Show graphically how the AD curve shifts when there is a change in government spending or taxes. In general, what causes the AD curve to shift?