Question
For both of the cases below, show using IS, MP, and AD/AS graphs the effects for both the short-run and long-run equilibriums for the economy.
For both of the cases below, show using IS, MP, and AD/AS graphs the effects for both the short-run and long-run equilibriums for the economy. Briefly explain what happens in each graph, and clearly label the SR and LR equilibria. Assume the economy starts off initially at a long-run equilibrium (point 'A'). Also, indicate what happens to each of the following relative to the original LR equilibrium, in both the short run and long run: Inflation, unemployment rate, real interest rate, and output (i.e. increases, decreases, unchanged, indeterminate). Each part is worth 10 points.
(a)Fiscal policymakers decrease taxes.
(b)Monetary policymakers decrease the autonomous real interest rate.
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