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.

Solutions

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'.

please upvote if i'm able to help you it means a lot

thank you

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

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 line 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 assignment number are written on each page of graphs you...

Write an explanation of the determination of long-run exchange rates versus the determination of short-run exchange...

Write an explanation of the determination of long-run exchange rates versus the determination of short-run exchange rates.

For each statement below write true or false and then provide a short explanation. a. If...

For each statement below write true or false and then provide a short explanation. a. If the nominal interest rate is greater than inflation, then the real interest rate is negative. b. The substitution effect of an increase in the interest rate is a decrease in the current consumption. c. The income effect of an increase in the wage rate is an increase in working time. d. If the user cost of capital is fixed, a permanent positive technological shock...

Using diagrams and the short-run AD-AS model, show the three short-run equilibrium states of the economy...

Using diagrams and the short-run AD-AS model, show the three short-run equilibrium states of the economy and illustrate (i) a recessionary gap, (ii) an inflationary gap, and (iii) full employment equilibrium.

For each of the following, use the AD-AS diagram to explain the short-run and long-run effects...

For each of the following, use the AD-AS diagram to explain the short-run and long-run effects on output and inflation. Assume that the economy starts in long-run equilibrium. a. Consumer confidence increases. b. A reduction in taxes. c. A decrease in the money supply by the Fed. d. A sharp, unexpected, increase in oil prices. e. A war increases government purchases.

Please use the IS-LM diagram and AD-AS diagram to describe the short run and long run...

Please use the IS-LM diagram and AD-AS diagram to describe the short run and long run effect of positive shock of government purchases.

Predict, with the aid of the IS-LM and the SAS-AD models, the short-run and long-run results...

Predict, with the aid of the IS-LM and the SAS-AD models, the short-run and long-run results when consumer optimism increases. Assume the economy is initially in long-run equilibrium at the natural real GDP. To receive full credit make sure to do the following: (i) Explain why each curve shifts. (ii) Clearly label the starting equilibrium. (iii) Clearly label at least 2 short-run equilibrium points. (iv) Clearly label the final long-run equilibrium. (v) What happens to the interest rate, output, price...

Use the AD-AS diagram to graphically illustrate the short-run and long run impacts of an increase...

Use the AD-AS diagram to graphically illustrate the short-run and long run impacts of an increase in taxes on the price level and income. Write down the impact of this policy on income, interest rate, unemployment and investment. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium levels; iv. the direction the curves shift; and v. the new short-run and long-run equilibriums.

For each of the following, use an AD-AS diagram to show the short-run and long-run effects...

For each of the following, use an AD-AS diagram to show the short-run and long-run effects on output and inflation. Assume the economy starts in long-run equilibrium. a. An increase in consumer confidence that leads to higher consumption spending. b. A reduction in taxes. c. An easing of monetary policy by the Fed (a downward shift in the policy reaction function). d. Now, in addition to the increase in consumer spending, suppose that the economy experiences a favourable inflation shock...

Using AD/AS model and diagrams, discuss the short-run and long-run impacts of the following events on...

Using AD/AS model and diagrams, discuss the short-run and long-run impacts of the following events on the price level and output of the domestic economy (starting from the full-employment level): a. A rise in oil prices. Based on your analysis, suggest a policy recommendation in (a). b. A decrease in tourism. Based on your analysis, suggest a policy recommendation in (b).

Subjects