Tutorial Assignment 2

1)  What is the crowding-out effect economic theory?

2)  What happens to money and real wages when the expected price level decreased?

3)  What are the factors that cause the AD curve to shift to the right?

4)  What are the differences between the Keynesian AD curve and the classical AD?

5)  Discuss briefly the characteristics of the long-run aggregate supply curve.

6)  What are the assumptions of Classical and Keynesian theories?

Questions 7 to 9 are based on the following information:

Given money market information (in millions of RM):

Money supply (Ms)                                                     = 30,000

Money demand for speculative purposes (Mds)          = 5000 – 1000r

Money demand for transaction purposes (Mdt)           = 0.5Y

7)  What is the equation for the LM curve?

8)  What is the value of the slope of the LM curve?

9)  What will happen to the LM curve if the money demand function for speculative purposes changes to 5500 – 1000r?

10) Explain briefly Fisher’s equation of quantity theory.

Questions 11 to 14 are based on the following information:

The table below shows the production of goods X and Y per unit of labour in country M and country N. Assume there are 100,000 labour units in each country.

11) What is the opportunity cost of goods X and Y for country M?

12) What is the opportunity cost of goods X and Y for country N?

13) Based on the answers to questions 11) and 12), which country enjoys a comparative advantage in the production of goods X and/or Y?

14) After specialization, how many units of goods X and Y are produced?