Explain what will happen as a result of the following events. In each case, draw an aggregate demand and short-run aggregate supply diagram showing the initial equilibrium output level (Y0) and price level (P0). Show any changes, indicate the final equilibrium output level and price level and explain briefly. a. The economy is in a recession. An increase in government purchases occurs. The Fed tries to maintain the interest rate. b. The economy is operating near full capacity. Now environmental pollution standards are tightened substantially.
Explain what will happen as a result of the following events. In each case, draw an aggregate demand and short-run aggregate supply diagram showing the initial equilibrium output level (Y0) and price level (P0). Show any changes, indicate the final equilibrium output level and price level and explain briefly. a. The economy is in a recession. An increase in government purchases occurs. The Fed tries to maintain the interest rate. b. The economy is operating near full capacity. Now environmental pollution standards are tightened substantially.
Chapter8: Macroeconomic Equilibrium: Aggregate Demand And Supply
Section: Chapter Questions
Problem 11E
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Explain what will happen as a result of the following events. In each case, draw an aggregate
demand and short-run
price level (P0). Show any changes, indicate the final equilibrium output level and price level and
explain briefly.
a. The economy is in a recession. An increase in government purchases occurs. The Fed
tries to maintain the interest rate.
b. The economy is operating near full capacity. Now environmental pollution standards
are tightened substantially.
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