1) How will our AD/AS graph look like when U.S. Government increases spending for public schools?...

1) How will our AD/AS graph look like when U.S. Government increases spending for public schools?

2) How will our AD/AS graph look like when domestic producers are given government subsidies?

3) How will our AD/AS graph look like when U.S. Congress passes law to decrease the age of working Americans to 13?

4) How will our AD/AS graph look like when the cost of coal rises?

5) How will our AD/AS graph look like when the U.S. invades Canada?

How can we go back to full economy (point A)? Use the Classical and Keynesian methods.

Solutions

Expert Solution

1) How will our AD/AS graph look like when U.S. Government increases spending for public schools?

Increase in government spending by the government would lead to shift in AD to right side.

2) How will our AD/AS graph look like when domestic producers are given government subsidies?

Subsidies will reduce the cost of production for producers, hence, AS will shift to right side.

3) How will our AD/AS graph look like when U.S. Congress passes law to decrease the age of working Americans to 13?

Decrease in age of working American to 13 will increase labor supply in market. Now labor shall be cheaply available in market. AD shall shift to right side.

4) How will our AD/AS graph look like when the cost of coal rises?

Cost of coal rise implies that now production cost will rise. Thus AS will shift to left side.

5) How will our AD/AS graph look like when the U.S. invades Canada?

Both AD and AS will shift to right but goods shall be used for war. Hence, prices shall rise.

How can we go back to full economy (point A)? Use the Classical and Keynesian methods.

Classical economists believe that free market system, and flexible wage rate shall set everything right. Government intervention is not required. In the course of time, economy will come to its equilibrium level. Full employment is general condition.

Keynesian method does not believe in free market system to restore equilibrium. Hence it recommends government participations in economic activities to increase aggregate effective demand. Increase in aggregate effective demand will restore employments level.

Rahul Sunny answered 1 year ago

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