Using the aggregate demand/aggregate supply model, explain the difference in the employment prospects of the graduates of 2007 and 2009.
What will be an ideal response?
The graduates of 2007 were facing an economy where both the aggregate demand and aggregate supply curves were shifting outward leading to increasing real GDP, lower unemployment rates, and a high demand for labor. This position was heading in the direction of an inflationary gap, illustrated by the increasing salaries and bonuses received by the lucky graduates of 2007. In contrast, the graduates of 2009 were facing a situation where the aggregate demand curve was shifting inward, creating conditions more similar to a recessionary gap. This signaled a decrease in real GDP, increasing unemployment rates, and lower salary offers and the virtual disappearance of bonuses and other signs of a seller’s labor market.
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Based on the figure below. Starting from long-run equilibrium at point C, a tax cut that increases aggregate demand from AD to AD1 will lead to a short-run equilibrium at point ________ and eventually to a long-run equilibrium at point ________, if left to self-correcting tendencies. 
A. D; C B. B; C C. B; A D. D; B
A risk averse individual
a. values a lottery at more than its expected value b. values a lottery at exactly its expected value c. values a lottery at less than its expected value d. tends to play lots of lotteries
Generally speaking, markets do a(n) ____ job of reconciling the demands of fairness and efficiency.
A. excellent B. above-average C. average D. poor
Taxes levied on sharply defined bases tend to distort choice ________ and impose ________ excess burden than taxes on more broadly defined bases.
A. less; larger B. more; larger C. less; smaller D. more; smaller