Assuming these graphs illustrate the implementation of expansionary macroeconomic policy that increases the total desired spending from AEo to AE1 – the equivalent of shifting the AD curve from ADo to AD1, what else about can be gleaned from the situation depicted? There are multiple answers e) Inflation increases the impact of expansionary policy. d) The resulting increase in equilibrium real GDP will be smaller because the inflation dissipates part of the impact of the original increase in expenditures, thus reducing the autonomous pending multiplier. c) The inflation caused by the shift in AD and an upward sloping AS curve will be reflected in a decrease in AE shown by the AE curve shifting down from AE1 to AE*. a) The Short-Run Aggregate Supply (AS) curve is upward sloping, so as Aggregate Demand (AD) is increased by the expansionary policy leading to an increase in equilibrium real GDP, the shift will also result in some product price inflation. b) From the diagrams it is clear that the expansionary policy is intended to cure the problem of a recessionary gap to move the product markets equilibrium from Qa to Qf, the full employment level of of income and production.
Assuming these graphs illustrate the implementation of expansionary
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e) Inflation increases the impact of expansionary policy. |
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d) The resulting increase in equilibrium real GDP will be smaller because the inflation dissipates part of the impact of the original increase in expenditures, thus reducing the autonomous pending multiplier. |
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c) The inflation caused by the shift in AD and an upward sloping AS curve will be reflected in a decrease in AE shown by the AE curve shifting down from AE1 to AE*. |
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a) The Short-Run |
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b) From the diagrams it is clear that the expansionary policy is intended to cure the problem of a recessionary gap to move the product |
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