final_exam_practice

final_exam_practice - Scenario Households and businesses...

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For each of the following events, first draw the initial SAS, AD and LAS grafts, then determine the effect of each scenario on either the aggregate demand curve (is it a rightward or a leftward shift?), the aggregate short-term supply curve, and the long-term aggregate supply curve (does the upward sloping portions of the SAS curve shift up or down, or does the vertical portion of the LAS curve shift to the right or to the left?). Also determine the effect on the price level and the real output level. Express this graphically using the macro policy model. 1. The economy (macro equilibrium) is at potential or full employment output.
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Unformatted text preview: Scenario: Households and businesses are now much less optimistic about the future state of the economy. 2. The economy (macro equilibrium) is at potential or full employment output. Scenario: There is a substantial increase in production costs. 3. The economy is far below potential or full employment output. Scenario: Government increases its spending and reduces personal income tax rates. 4. The economy is at potential or full employment output. Scenario: Government increases spending and reduces personal income taxes. 5. The economy experiences a significant increase in production technology....
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