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Consider the AS-AD model of the economy where output is currently at its natural level. Suppose now that there is an increase in government spending
Consider the AS-AD model of the economy where output is currently at its natural level. Suppose now that there is an increase in government spending from Gto
A) Explain graphically both, the short run and the medium run effects of the increase in government spending on the output and the price level using the AS-AD model.
b) Explain graphically both, the short run and the medium run effects of the increase in government spending on the interest rate, by linking the AS-AD model to the IS-LM model.
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