Answer Happy

Question 2 (2 marks): Suppose the economy is initially in a long-run equilibrium with the potential output Y*. Analyse the impacts of the two following shocks on the price level and output in the short run and in the long run (Assume that the economy can adjust itself). Note: Students are required to show all explanations and include all points in a diagram a. The Congress decides to increase the income tax b. Firms expect higher price level so change the output in the short run