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Assume an economy that is operating above full employment.A. Draw a correctly labeled aggregate demand and aggregate

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Question;Assume an economy that is operating above full employment.A. Draw a correctly labeled aggregate demand and aggregate supply graph and show each ofthe following:i.The long-run aggregate supply curveii.Current price level and output levels, labeled PLe and Yeiii.Full employment output, labeled YfB. Identify one fiscal policy action that could resolve the problem.C. Using your graph in Part A, show the short-run effects of the action you identified oneach of the following:i.Aggregate demand. Explain (use the cause and effect chain you learned in thelesson)ii. Outputiii. Price levelB. Using a correctly labeled loanable funds graph, show the effect of the policy youidentified in Part B on real interest rates.C. Given the change in the real interest rate in Part D, what is the impact on each of thefollowing?i. Investmentii. Economic growth rate. Explain.iii.The international value of the dollar. Explain.B. Now assume instead that the government takes no policy action to fix the problemidentified in part A.i.In the long run, will the short-run aggregate supply increase, decrease, or remainunchanged? Explain.

 

Paper#57804 | Written in 18-Jul-2015

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