Assume that the United States economy is currently in a recession in a short-run equilibrium. a. Draw a correctly labeled graph of the short-run and long-run Phillips curves. Use the letter A to label a point that could represent the current state of the economy in recession. b. Draw a correctly labeled graph of aggregate demand and aggregate supply in the recession and show each of the following. i)The long-run equilibrium output, labeled Yf ii) The current equilibrium output and price levels, labeled Ye and PLe, respectively C)To balance the federal budget, suppose that the government decides to raise income taxes while maintaining the current level of government spending. On the graph drawn in part (b), show the effect of the increase in taxes. Label the new equilibrium output and price levels Y2 and PL2, respectively
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to “Calculate,” you must show how you arrived at your final answer.
1. Assume that the United States economy is currently in a recession in a short-run equilibrium.
a. Draw a correctly labeled graph of the short-run and long-run Phillips curves. Use the letter A to label a point that could represent the current state of the economy in recession.
b. Draw a correctly labeled graph of aggregate
i)The long-run equilibrium output, labeled Yf
ii) The current equilibrium output and price levels, labeled Ye and PLe, respectively
C)To balance the federal budget, suppose that the government decides to raise income taxes while maintaining the current level of government spending. On the graph drawn in part (b), show the effect of the increase in taxes. Label the new equilibrium output and price levels Y2 and PL2, respectively
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