1-There are a number of theories that explain why the aggregate demand curve is downward sloping. The price level in the economy increases. For each of the following reactions, which theory explains it and why:
a. My company was planning to build a new factory but decide not to for the moment.
b. I stop buying Irish potatoes and buy UK potatoes instead
c. I usually get a take away on a Saturday night, and although I can still afford it, I decide to cook instead.
2-A change in expectations leads to a decrease in the short run aggregate
supply in an economy. With the aid of a diagram, explain what effect this has on the price level, output, and unemployment.
