For the question below, write an explanation of the short-run effect (including the determinant of AD...

For the question below, write an explanation of the short-run effect (including the

determinant of AD or AS that is causing the shift, the Iline that shifts (AD or AS), the

direction of the shift (left or right), and the impact on output and price level (increase or

decrease) and submit a properly drawn and labeled aggregate demand and aggregate supply

graph for the scenario. Make sure your name and assigninent number are written on each

page of graphs you submit. All text must be written in the text box provided.

Congress passes a sweeping health care reform bill that provides free medical insurance for all Americans. Once the President signs it into law, the government will provide every American with a policy that will pay up to 80% of every medical bill a patient incurs. This change does not impact consumer income.The scenario presented, prompts a shift in aggregate demand (AD) to the right due to an increase in government spending on services. Both the output and price level would increase as a result of the scenario.

Expert Solution

the reform bill that provide free medical insurance for all american will cause increase in government spending and government spending is a determinant of aggregate demand change in government spending cause shift in aggregate demand and increase in government spending cause rightward shift in aggregate demand as shown in diagram due to increase in government spending aggregate demand curve shift rightward from AD to AD' which cause increase in price level from P to P' and increase in output from Y to Y'.

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Rahul Sunny answered 2 years ago

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