M+V Growth: 8% Long-Run Growth: 4% Expected Inflation: 4% Large and unexpected increase in government spending...

M+V Growth: 8%

Long-Run Growth: 4%

Expected Inflation: 4% Large and unexpected increase in government spending

Carefully draw the three curves (AD, LRAS, and SRAS in long run equilibrium at the point indicated above). Label that triple intersection LR1.

Using a new color draw a new curve or curves consistent with your Scenario.
Label that new intersection SR1, indicate on your graph a reasonable level of GDP growth and inflation for this new equilibrium.
What happens to Unemployment at SR1 (does it go up, down, or stay the same)?
Find the new Long Run equilibrium and label it LR2, indicate on your graph a reasonable level of GDP growth and inflation for this new equilibrium.

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

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