FRQ 1: Aggregate Demand and Supply Shifts

1. Short-Answer (SAQ):
   a. Draw a correctly labeled graph of the aggregate demand (AD) and short-run aggregate supply (SRAS) curves, showing equilibrium price level and output.
   b. Assume there is an increase in consumer confidence. Show and explain the effect of this change on the equilibrium price level and output in the short run.
2. Long-Answer (LAQ):
   c. Suppose the government increases investment in AI-driven infrastructure, such as smart cities. Explain how this could affect the long-run aggregate supply (LRAS). Illustrate the change on your graph.

FRQ 2: Recessionary and Inflationary Gaps

1. SAQ:
   a. Assume the economy is initially in long-run equilibrium. Illustrate the impact of a widespread adoption of AI technology that automates production, significantly increasing productivity.
   b. What type of output gap (recessionary or inflationary) would result from this shift? Explain your reasoning.
2. LAQ:
   c. Discuss the role of the central bank in addressing the output gap caused by AI-driven productivity increases. What monetary policy tools would it use, and how would these affect the money supply and aggregate demand?

FRQ 3: Fiscal Policy and Aggregate Demand

1. SAQ:
   a. Assume the government increases spending on AI research grants. Explain how this action affects aggregate demand in the short run.
   b. Draw a correctly labeled graph of the loanable funds market. Show and explain how increased government spending might affect real interest rates.
2. LAQ:
   c. If higher interest rates crowd out private investment, how might the development of AI in the private sector be impacted in the long run? Discuss the implications for aggregate supply.

FRQ 4: The Phillips Curve and AI Automation

1. SAQ:
   a. Draw a correctly labeled short-run Phillips curve (SRPC). Assume AI automation leads to widespread job displacement. Show the likely effect on the SRPC and explain your reasoning.
2. LAQ:
   b. Evaluate the potential trade-offs policymakers face when addressing unemployment caused by AI automation using fiscal or monetary policies.

FRQ 5: Financial Sector and AI Integration

1. SAQ:
   a. Explain how AI integration in financial markets (e.g., algorithmic trading and risk assessment) could influence the velocity of money.
   b. Illustrate the potential effects of increased financial efficiency due to AI on the money market, using a correctly labeled graph of the money supply and demand.
2. LAQ:
   c. Discuss how advancements in AI could impact monetary policy's effectiveness, particularly in stabilizing aggregate demand.

FRQ 6: International Trade, AI, and the Exchange Rate

1. SAQ:
   a. Assume a country heavily invests in AI technology, increasing productivity relative to other nations. How would this affect the value of its currency in the foreign exchange market? Explain.
   b. On a correctly labeled graph of the foreign exchange market, show and explain how this change affects the equilibrium exchange rate.
2. LAQ:
   c. If the country’s exports become more competitive due to AI-driven productivity gains, analyze the long-term effects on its aggregate supply and aggregate demand.