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In: Economics

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.

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