Question 1.
Starting from long-run equilibrium, use the basic (static) aggregate demand and aggregate supply diagram to show what happens in both the short run and the long run when there is a reduction in consumer confidence. Explain your diagram.
Maximum number of words: 150.
Explain how each of the following events in questions 2 and 3 would affect the aggregate demand curve. No graph required.
Question 2.
Domestic prices increase, which raises interest rates.
Maximum number of words: 50.
Question 3.
Slower income growth in other countries.
Maximum number of words: 50.
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