Suppose that the economy was initially in a long-run equilibrium. Then the Federal Government decided to increase govern
Posted: Thu May 19, 2022 8:49 am
Suppose that the economy was initially in a long-run
equilibrium. Then the Federal Government decided to increase
government spending by 1 trillion dollars on infrastructure. A) Use
the the IS–LM and AD–AS diagrams to show the short-run effects of
this policy change. Clearly label all axes, curves, and equilibrium
values of variables for full credits. (10 points)
B) Use the the IS–LM and AD–AS diagrams to show what happens in
the transition from the short run equilibrium to the new long run
equilibrium. Clearly label all axes, curves, and equilibrium values
of variables for full credits. (18 points)
C) How do the new long-run equilibrium values of r, Y, P, and I
compare to their initial values? (8 points)
equilibrium. Then the Federal Government decided to increase
government spending by 1 trillion dollars on infrastructure. A) Use
the the IS–LM and AD–AS diagrams to show the short-run effects of
this policy change. Clearly label all axes, curves, and equilibrium
values of variables for full credits. (10 points)
B) Use the the IS–LM and AD–AS diagrams to show what happens in
the transition from the short run equilibrium to the new long run
equilibrium. Clearly label all axes, curves, and equilibrium values
of variables for full credits. (18 points)
C) How do the new long-run equilibrium values of r, Y, P, and I
compare to their initial values? (8 points)