"AD & AS Model"          'Take Home' Quiz             Ray Butler

The purpose of this quiz is to provide you with an opportunity to demonstrate your knowledge of the Aggregate Demand & Aggregate Supply Model.  Specifically, you will be able to apply this 'Model' to 'real world' economic events.  Our goal is to use this "framework of the mind" to increase our understanding of how changes in the economic environment alter the level of economic activity, the level of employment, and the price level.

Instructions:

A) Use the 'AD & AS Model' presented in class to illustrate the following 'real world' cases.

B) Graph each case using the AD & AS Model. Be sure to label your graphs with the necessary symbols, etc... Also, note the 'equilibrium' before the event and the 'equilibrium' after the event. I suggest you use color for emphasis.

C) Briefly explain. A sentence or two of explanation should be sufficient- the joy of the graphs is that they speak for themselves when presented with the necessary detail.

D) This is a 40 point Quiz and the Due Date is Tuesday May 2nd.

E) I suggest you make a backup copy for you records.

F) Provide a cover page for your quiz.


Case One:
Households experience a favorable "Wealth Effect"- i.e., the"Bull Market" of the 90s!

Case Two:
An increase in our firm's Investment Expenditures- i.e., the"Investment Boom" of the 90s!

Case Three:
An increase in the Trade Deficit- i.e., the 'record setting' "Trade Deficits" of the 90s!

Case Four:
An increase in Government Education Expenditures- i.e., increased "Social Capital" in 2000!

Case Five:
A decrease in the Price of Petroleum- i.e., the current "OPEC Oil 'Production' Hike"!