# 1. In Japan, potential GDP is 600 trillion yen and the table shows the aggregate demand and short-run aggregate supply schedules.

01 / 10 / 2021 Statistics

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Part 1: Firm Perspective [20 marks]
1. Explain using a diagram what would happen in the market for car tires if at the same time there was an increase in the prices of rubber used in the production of tires and a decrease in the price for cars. Explain the effects on price and quantity. (10 marks)
2. In a perfectly competitive market for apples explain would happen in the shortrun to the market and to individual producers if the price for pears went up. Demonstrate your answer using a diagram. With reference to the same diagram show what would happen to the market and individual producers in the long-run.  (10 marks)
Part 2: Macroeconomic Perspective [40 marks]
1. In Japan, potential GDP is 600 trillion yen and the table shows the aggregate demand and short-run aggregate supply schedules.
a) What is the short-run equilibrium, real GDP and price level? (3 marks)
b) Does Japan have an inflationary gap or a recessionary gap? What fiscal policy can be used to correct this gap?
2. Using the sources below answer the following questions:
ISTAT cuts Italy GDP forecast to -1.4 pc, unemployment to rise Reuters May 6, 2013, 02.06PM IST
ROME: Italy`s economy will contract by 1.4 per cent this year … national statistics institute ISTAT forecast on Monday.
The latest forecast for 2013 marked a sharp downward revision from a previous projection of -0.5 per cent made in November, reflecting the continued weakness of domestic demand as Italy languishes in its longest recession for 20 years. ...

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