Suppose that the unemployment benefits are increased permanently, answer the fol

Question

Suppose that the unemployment benefits are increased permanently, answer the following questions using the AD-AS model to analyze the impacts:

A)         What will happen to Y (GDP), r (real interest rate), P(price level), and I(investment), in the short run (3 Points)? Your answer should indicate will these values increase or decrease in the short run.

B)          What will happen to Y, r, P, and I, in the long run (3 Points)? Your answer should indicate will these values increase or decrease in the long run.

Explanation / Answer

for case a AD shift left so change in AS for case b AD AND AS do not shift

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