Suppose the economy is initially at potential GDP.
(A)Draw an aggregate demand curve and price adjustment line,and label the initial equilibrium with an A.
(B)Suppose government purchases increase.Illustrate the short-run effect on your diagram.Label the new equilibrium with a B.
(C)Explain the short-run effect on C,I,G,X,R,and inflation,as compared to baseline.
(D)Illustrate the long-run effect on your diagram,and label the long-run equilibrium with a C.
(E)Explain the long-run effect on C,I,G,X,R,and inflation,as compared to baseline.
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(B) See graph abov...View Answer
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