Question
Suppose the economy is initially in long run equilibrium. For each of the shocks listed below, explain the effects on output and the price level.
Suppose the economy is initially in long run equilibrium. For each of the shocks listed below, explain the effects on output and the price level. If you shift a curve, please explain (AD, SRAS or LRAS). Do
the shock and short run equilibrium then adaptation to long run. Don't assume any government og
monetary action - reaction or accommodation. Assume the economy starts in long-run equilibrium.
a) An increase in consumer confidence leads to higher consumption spending.
b) The government reduces income taxes.
c) The Fed loosens monetary policy.
d) Government must decrease spending due to debt issues
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