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Consider the following questions in the context of an economy with a Keynesian model of the labour market. (a) Suppose unemployment currently exists in the
Consider the following questions in the context of an economy with a Keynesian model of the labour market. (a) Suppose unemployment currently exists in the economy (nominal wage floor binds), and the economy is currently in a state of general equilibrium. Draw the AD-AS diagram representing the current state of the economy. Be sure to indicate the current price level (Pa), output (Y,) and the level of full-employment output (YA). No explanation required. (6.5 marks) (b) Suppose the government decides to decrease government purchases (AG
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