You are in the Oval Office trying to convince the President to increase governme

Question

You are in the Oval Office trying to convince the President to increase government spending in order to reduce unemployment. The president remembers the AD/ AS model, but can’t remember the shape of the AS curve. The president is worried that increased spending will cause unacceptably high inflation. Assuming you have no problem lying, what shape AS curve will you tell the president to use so that she agrees to increase government spending? a. Vertical b. Sloping up. c. Flat (horizontal) You are in the Oval Office trying to convince the President to increase government spending in order to reduce unemployment. The president remembers the AD/ AS model, but can’t remember the shape of the AS curve. The president is worried that increased spending will cause unacceptably high inflation. Assuming you have no problem lying, what shape AS curve will you tell the president to use so that she agrees to increase government spending? a. Vertical b. Sloping up. c. Flat (horizontal) You are in the Oval Office trying to convince the President to increase government spending in order to reduce unemployment. The president remembers the AD/ AS model, but can’t remember the shape of the AS curve. The president is worried that increased spending will cause unacceptably high inflation. Assuming you have no problem lying, what shape AS curve will you tell the president to use so that she agrees to increase government spending? a. Vertical b. Sloping up. c. Flat (horizontal)

Explanation / Answer

Option a

The AS curve in long run would be a vertical curve. Though with the increase in spending from government, AS increases which might cause inflation, but in the long run the, AS curve would be a vertical curve to x-axis as the production capacity depends on the production capacity and availability of inputs.

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