Question

Problem sel 3 2. The Spartanville economy is initially at long run equilibrium. On each graph, draw the AD-AS graph showing the economy at the long run equilibrium. Label the axes, curves and show the equilibrium price level and GDP. “A” For each event, show on the graph the short run change. State which curve(s) shifts, if any, and which direction. Label the new short run equilibrium "SR eq" "B". How does the price level and GDP change in the short run (circle below)? Show the new long run equilibrium if no policy action is taken. State which curve(s) shifts, if any and which direction. Label the new long run equilibrium “LR eq" "C". How does the price level and GDP compare to the initial price level and GDP ("A")? a. The Spartanville government increases spending on the military. In the SR, which curve(s) shifts? which way? Price level increases, decreases, no change GDP increases or decreases, no change In the LR, is there a shift? which curve and which way? Price level "C" is greater than, less than, equal to Price level "A"; GDP “C” is greater than, less than, equal to GDP "A"; b. The houses in Spartanville have decreased in value significantly and consumers feel poorer. In the SR, which curve(s) shifts? which way? Price level increases, decreases, no change GDP increases or decreases, no change In the LR, is there a shift? which curve_ and which way? Price level "C" is greater than, less than, equal to Price level "A"; GDP "C" is greater than, less than, equal to GDP "A";

Answer 1

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