Question
Say you have two graphs of an economy: a graph showing the Keynesian model (as discussed in part A, above) and another showing the AD/AS
Say you have two graphs of an economy: a graph showing the Keynesian model (as discussed in part A, above) and another showing the AD/AS model. In the AD/AS diagram, the AD curve will shift to the right by the amount of the increase in Y predicted by the Keynesian AE model. If the AD curve intersects the AS curve in the flat, Keynesian portion of the AS curve, what will be the increase in real output in the AD/AS model resulting from the $100 million increase in government spending?
Is there a specific equation for this problem or do I draw graphs and if so what would they look like? Thank you!
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