Assume a new bill is passed that increases government expenditures by $1 trillion. A) On a graph, use the traditional IS

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Assume A New Bill Is Passed That Increases Government Expenditures By 1 Trillion A On A Graph Use The Traditional Is 1 (99.24 KiB) Viewed 13 times

Assume a new bill is passed that increases government expenditures by $1 trillion. A) On a graph, use the traditional IS-LM model to analyze how the economy would respond in the short-run and the long-run in response to the increase in government spending. What happens in the short-run and the long-run to output, the real interest rate and the aggregate price level? (10pts) B) On a graph, re-analyze the short-run and long-run response of the economy using classical assumptions. Explain why the classical theory of expansionary fiscal policy differs from the traditional theory in part A. (10pts)