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We consider the effects of public investment in this question. Suppose the government passes a bill to increase spending on infrastructure such as roads, bridges,
We consider the effects of public investment in this question. Suppose the government passes a bill to increase spending on infrastructure such as roads, bridges, ports and broadband infrastructure. This is a one-time increase in government spending this year. We assume that prices are fixed during the economic events considered in this question (i.e., we focus on the short run.). (1) Suppose the infrastructure increases the productivity of firms. However, as public investment projects take time to complete, infrastructure leads to an increase in productivity of firms in the future while government spending occurs this year. (a)(4 points) Using the IS-LM diagram, explain what will happen to output and the real interest rate this year
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