1. Explain the quantity theory of money and how it can be used to derive Aggregate Demand ( AD ) curve . Based on this derivation what would be the effect of an increase in the money supply on AD curve ?
2. Write out the equation for output growth with capital , labor and total factor productivity as determinants of growth . Suppose that the shares of capital and labor are respectively 0.3 and 0.7 . If labor supply grows by 10 % what would be the growth rate of output assuming that there is no change in the other determinants ? What would happen to per capita output if labor supply growth is entirely due to population growth ?