Question

1.)Suppose, the government is concerned about breaches in government data security and has decided to spend $1billion dollars on improving data security. Government will not cut spending in other areas of the budget, so it will likely have to issue new government bonds to finance this increase in government spending. Use the graph below to show the impact of the aforementioned on the economy by shifting the appropriate curve(s).

2.) Suppose the US government has decided to expand its budget this year and spend on upgrading all of the main bridges in the eastern United states. Use the graph below to show the impact of the aforementioned on the economy by shifting the appropriate curve(s).

Provide your answer werow! Price Level Aggregate Supply Aggregate Demand Real GDP

Answer 1

1. The increased government spending shift the aggregate demand curve to the right. The real GDP and price level increase. Price level Aggregate supply o i Aggregate demand \Aggregate demand 1 Real GDP 2. As the government expand its expenditure the aggregate demand in the economy increase. This will shift the aggregate demand curve to the right and thus price level and real GDP increasc. Price level Aggrcgale supply o i Aggregate demand Aggregate demand 1 Real GDP