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1. Aggregate Supply curve shows the relationship between the price level and the real GDP supplied in an economy.

A: Under what circumstances will the AS curve have a flat segment?
B: When an economy has a vertical AS curve?
C: The AS curve is upward sloping in the intermediate region between the horizontal and the vertical segments. What kind of macroeconomic conditions give rise to the upward sloping range?

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2. Write a one-page essay on the role of automatic stabilizers. In your essay include comments on the following points:

A: What are automatic fiscal stabilizers? How do these stabilizers stabilize real GDP in the face of AD and AS shocks?
B: What is the role of the simple multiplier [ 1/{1 – MPC(1 – t) – m}] in stabilization of the swings in real GDP?
C: How the slope of the AD curve affects the stability of real GDP in the presence of AS shocks?
D: How the automatic stabilizers depend on the sizes of MPC, t, and m

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