Suppose an economy experiences a decrease in investment expenditure. a) Show graphically using AD-AS model how...

Suppose an economy experiences a decrease in investment expenditure. a) Show graphically using AD-AS model how the price level and output are affected in the short-run. b) Can the government use fiscal policy to offset the effects on price level and output, explain?

Expert Solution

A) decrease in investment expenditure will decrease aggregate demand. This shift the aggregate demand curve to the left. The price level and output level both are reduced in the short run. This is shown below

B) fiscal expansion is required in order to increase the price level in output to their initial levels. In this policy the government will increase its expenditure and / or it will reduce taxes in order to boost consumption and investment. This is going to increase aggregate demand and shift the aggregate demand curve to the right. Both the price level and the real GDP are now increased and return to their initial levels

Rahul Sunny answered 2 years ago

Suppose an economy experiences an increase in exports. a) Show graphically using AD-AS model how the price level and output are affected in the long-run.

Suppose an economy experiences an increase in exports. a) Show graphically using AD-AS model how the price level and output are affected in the long-run. b) Can the government use monetary policy to offset the effects on price level and output, explain.

1. In the AS-AD model, show graphically what would happen to the US economy in the...

1. In the AS-AD model, show graphically what would happen to the US economy in the short-run and in the long-run if aliens doubled the amount of capital in our economy. Label the initial long-run equilibrium with A, the short-run equilibrium with B, and the new long-run equilibrium with C. P on the Y-axis; and Y on the X-axis. 2. In the AS-AD model, show graphically what would happen to the US economy in the short-run and in the long-run...

Consider a closed economy. Using the IS-LM and AD-AS models, show graphically how a simultaneous increase...

Consider a closed economy. Using the IS-LM and AD-AS models, show graphically how a simultaneous increase in taxes and a decline in government spending would affect equilibrium output, interest rates, unemployment rate, and the price level both in the short-run and medium-run. Next, explain the effects (if any) using a time-series graph on the consumption and investment both in the short-run and medium-run. Suppose that the economy starts at the natural level of output. Please label the initial equilibrium with...

Using an AD- AS model and the classical business cycles framework, show graphically and explain the...

Using an AD- AS model and the classical business cycles framework, show graphically and explain the effects of an unanticipated increase in the money supply (unanticipated expansionary monetary policy).

1. Using AD and AS model, graphically explain the following: Suppose that the Government increases spending...

1. Using AD and AS model, graphically explain the following: Suppose that the Government increases spending and simultaneously raises taxes. a) Show the effect of this change on AD schedule. b) How does this affect output and price level in the Keynesian case. c) How does this affect output and price level in Classical case.

In the AS/AD model how do we see economic growth? Explain and show graphically

Using the AD-AS model, show and briefly explain the short and long-run effects on the economy...

Using the AD-AS model, show and briefly explain the short and long-run effects on the economy of a massive increase in government-sponsored infrastructure spending.?

Use the AD/AS model to show an economy in recession. Explain how fiscal policy can be...

Use the AD/AS model to show an economy in recession. Explain how fiscal policy can be used to move the economy back to the long run, full employment level. Explain briefly. (1-2 pages)

1) Using an AS-AD model of the economy, demonstrate on a graph how different fiscal and...

1) Using an AS-AD model of the economy, demonstrate on a graph how different fiscal and monetary policies impact the economy. 2} How would you calculate the fiscal policy change needed to achieve full employment?

Consider the real intertemporal model with investment (closed economy). a. Using multiple related diagrams, show how...

Consider the real intertemporal model with investment (closed economy). a. Using multiple related diagrams, show how the labor market, production function, output supply, output demand, and interest rate all relate. b. Explain what influences the labor market, production function, output supply, output demand, and interest rate and how they relate

Question