1. Explain the influence of each of the following events on the quantity of real GDP supplied and aggregate supply in India and use a graph to illustrate.
a. Canadian firms move their call handling, IT, and data functions to India
b. Fuel prices rise.
c. Wal-Mart and Starbucks open in India.
d. The money wage rate rises.
e. The price level in India increases.
2. Use this figure to explain the following macroeconomic trends and fluctuations. Initially, the short-run aggregate supply curve is SAS0 and the aggregate demand curve is AD0.
a. Some events change aggregate demand from AD0 to AD1. Describe two events that could have created this change in aggregate demand. What is the equilibrium after aggregate demand changed? If potential GDP is unchanged, the economy is at what type of macroeconomic equilibrium?
b. Some events change aggregate supply from SAS0 to SAS1. Describe two events that could have created this change in aggregate supply. What is the equilibrium after short-run aggregate supply changed? If potential GDP is unchanged, does the economy have an inflationary gap, a recessionary gap, or no output gap?
c. Some events change aggregate demand from AD0 to AD1 and aggregate supply from SAS0 to SAS1. What is the new macroeconomic equilibrium?
3. How Will the Rise in Interest Rate Affect Us?
The Bank of Canada has hiked the interest rate for the first time in seven years. The increase will provide greater inventive for Canadians to save more, lead to a rise in mortgage rates, and increase the cost of borrowing to invest.
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a. Explain the effects of the Bank of Canada’s interest rate rise on household saving and consumption and business investment. Draw a graph to illustrate your explanation.
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