Open Question

Assume the US economy is currently at long run equilibrium.

1. Assume the government increases spending on national defense without rasing taxes.
2. On your graph from part a) show how the government action affects aggregate demand
3. How will this government action affect the unemployment rate in the short run? Explain

1. Draw a correctly labelled graph of aggregate demand and aggregate supply and show each of the following

The long run aggregate supply curve

The current equilibrium output and price levels, labelled as Ye and PLe respectively