Suppose government-spending increases while the economy is at full employment. 1. What effect will this action have on the economy? In other words, which curve shifts and in which direction? 2. Where is the economy in the business cycle - YE < YFE, Yɛ = YFE, or Yɛ > YfE 3. What will happen according to Keynes? Explain how the economy returns to full employment. 4. What will happen according to the Long Run Model? Explain how the economy returns to full employment. 5. From your answer in # 4 above, what happens to the Phillips Curve? 6. This was not covered in the video but what do you anticipate the Federal Reserve to do with the key interest rate after the increase in government spending above?

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