IF AD is...... Y = 4 (Ao - P/4)

and

AS is ..... Y = 1,100 ; for P > 650

IF Ao = Co - mpcTo + Io + Go + Xo - Mo = 600

mpc = 0.8

Part 1: According to the Aggregate Supply Curve (AS) described above, is the economy in the immediate short-run, short-run or long-run? Why?

Part 2: What is the equilibrium price level (Pe1)?

Part 3: What is the equilibrium level of income (Ye1)?

Suppose Government Spending increases by 95. Given this change answer parts 4 and 5:

Part 4: What is the equilibrium price level (Pe2)?

Part 5: What is the equilibrium level of income (Ye2)?

Starting again at initial equilibrium (parts 2 & 3), suppose lump sum taxes (To) are increased by 50. Given this change, answers parts 6 & 7:

Part 6: What is the equilibrium price level (Pe3)?

Part 7: What is the equilibrium level of income (Ye3)?Bottom of Form