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ECON 2301 Principles of Macroeconomics Module 3 Problem Set ADAS Model and Fiscal Policy See Canvas for due date. Answer the following questions and submit
ECON 2301 Principles of Macroeconomics Module 3 Problem Set ADAS Model and Fiscal Policy See Canvas for due date. Answer the following questions and submit to the appropriate space on Canvas. I. Assume that the Angolan economy is currently producing below the full employment level of output with a balanced budget. a. Draw a correctly labeled ADAS model with each of the following components: i. Current output and price level, labeled as Y, PLI, respectively ii. Full-employment output, labeled as YF b. The Angolan government increases spending on goods and services by $90 billion, which is financed by borrowing. How will the increase in government spending affect each of the following? i. Cyclical unemployment ii. The natural rate of unemployment2. Assume that the economy of Botswana is currently producing at the full employment output level. a. Draw a correctly labeled graph of aggregate demand and aggregate supply; include each of the following: i. The long-run aggregate supply curve ii. The current equilibrium output and price levels, labeled as YE and PLE, respectively b. Assume that the government of Botswana increases national education spending without raising taxes. i. On your graph above, show how the increase in government spending affects aggregate demand. ii. In the space below, explain how this government action will affect the unemployment rate in the short run. c. Assume the economy self-adjusts to a new long-run equilibrium after the increase in government spending. i. How will the short-run aggregate supply curve in the new long-run equilibrium compare with that in the initial long-run equilibrium in the original graph you drew? Explain what happens.3. Chile's economy is in a short-run equilibrium with an unemployment rate below the natural rate of unemployment. a. Draw a correctly labeled ADAS graph, include the following components: i. Full-employment output, labeled as Y FE ii. Equilibrium real output and price level, labeled as Yand PLI, respectively b. Assume that Chile's government decreases domestic spending on military equipment. On the graph you drew previously, show how the decreased military expenditures affect the following in the short run. i. Aggregate demand, label the new curve as AD, ii. Equilibrium real output and price level, labeled as Y, and PL,, respectively c. What is the likely impact of the decrease in military spending on each of the following? i. Unemployment ii. Budget deficit/surplus
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