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please answer two of three of your choice Choose and answer 2 out of 3 questions. Question 1: The AD-AS Model Suppose the economy is
please answer two of three of your choice Choose and answer 2 out of 3 questions. Question 1: The AD-AS Model Suppose the economy is initially in long-run equilibrium, and there is a positive demand shock. a. Describe the short-run effects of this positive demand shock on output, unemployment, and prices. b. Describe how the economy will automatically move back to the potential level of output in the long run. c. Illustrate your answers in point (a) and (b) using an AD-AS graph. Show the short-run effects and the long-run adjustments. Question 2: Fiscal Policy Suppose the economy is in a recessionary gap, and the government responds by conducting an expansionary fiscal policy. a. Suppose the marginal propensity to consume is 0.75. Calculate the effect of a $1,000 increase in government purchases on real GDP, and then calculate the effect of a $1,000 tax cut on real GDP. b. Why does a $1,000 tax cut generate a smaller multiplier effect than a $1,000 increase in government purchases? Question 3: Monetary Policy Suppose the economy is in an inflationary gap, and the Fed responds by conducting a contractionary monetary policy. a. Explain what the Fed does if it conducts open market operations to close the inflationary gap. b. Explain the effects of this monetary policy on interest rates, business investments, consumption expenditures, the value of the U.S. dollar, and the value of net exports
please answer two of three of your choice
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