Question using the model of aggregate demandaggregate

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Question Using the model of aggregate demand–aggregate supply to illustrate the traditional view, graphically compare the short-run and long-run impact of debt-financed tax cuts on: a. output, b. prices. Pool Canvas folder (19)/CourseComp...
Answer 16 of 17 12/8/2012 11:46 uni0645
In the short run, the debt-financed tax cut increases aggregate demand and results in more output and a higher price level, moving the economy from long-run equilibrium at A to short-run equilibrium at B. In the long run, the expected price level increases since output exceeds the natural level. The short-run aggregate supply curve shifts up, moving the economy from B to C. In the long run the economy has a higher price level, but output returns to the natural level. Pool Canvas folder (19)/CourseComp...
Add Question Here 17 of 17 12/8/2012 11:46 uni0645

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