Use the AD AS model to predict the impact on the economy from the following scen

Question

Use the AD AS model to predict the impact on the economy from the following scenario: The economy is in a severe depression (like the Great Depression) with high unemployment; consequently the AS curve is no longer sloping. The government responds by increasing Government spending. a. The curve will shift (AD or AS) b. The curve will shift (left or right) c. The new equilibrium price level (GDP Deflator Index) will be (higher, lower, or unchanged). d. The new equilibrium real GDP will be (higher, lower, or unchanged). ). e. The unemployment rate will be (higher, lower, or unchanged). Use the AD AS model to predict the impact on the economy from the following scenario: The economy is in a severe depression (like the Great Depression) with high unemployment; consequently the AS curve is no longer sloping. The government responds by increasing Government spending. a. The curve will shift (AD or AS) b. The curve will shift (left or right) c. The new equilibrium price level (GDP Deflator Index) will be (higher, lower, or unchanged). d. The new equilibrium real GDP will be (higher, lower, or unchanged). ). e. The unemployment rate will be (higher, lower, or unchanged). Use the AD AS model to predict the impact on the economy from the following scenario: The economy is in a severe depression (like the Great Depression) with high unemployment; consequently the AS curve is no longer sloping. The government responds by increasing Government spending. a. The curve will shift (AD or AS) b. The curve will shift (left or right) c. The new equilibrium price level (GDP Deflator Index) will be (higher, lower, or unchanged). d. The new equilibrium real GDP will be (higher, lower, or unchanged). ). e. The unemployment rate will be (higher, lower, or unchanged).

Explanation / Answer

The economy is in a severe depression (like the Great Depression) with high unemployment; consequently the AS curve is no longer sloping. The government responds by increasing Government spending.With such government steps, the AD curve will shift rightwards due to increased government spending as demand will increase in the short run. The new equilibruim price level will be higher than the depression period and the new equilibrium GDP will be higher than the depression period and the unemployment rate will be lower than depression period.

Related Questions

Navigate

• Browse (All)
• Browse U
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.