3. Problems and Applications Q3Suppose that a rise in government purchases causes an expansion.On the following graph, shift one or both curves to reflect the short-run effect of the rise in government purchases.Price LevelInflation RateIn the short run, inflationQuantity of OutputLRPCAggregate SupplyOAggregate DemandUnemployment RateOn the following graph, shift a curve or adjust the point to reflect the short-run effect of the rise in government purchases.SRPCCand unemploymentAggregate DemandAggregate SupplySRPCShort-Run Outcome?LRPCNow suppose that over time, expected inflation changes in the same direction that actual inflation changes. Now suppose that over time, expected inflation changes in the same direction that actual inflation changes.On both of the previous graphs, shift the appropriate curve or curves to reflect the change that brings the economy to its long-run state.After the expansion is over, the economy faces aset of inflation-unemployment combinations.

Government spending refers to the expenditure of public funds by the government on various goods and…

Answered: In the short run, inflation_ and…

In the short run, inflation_ and unemployment, Now suppose that over time, expected inflation changes in the same direction that actual inflation changes.

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter34: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 4CQQ

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Question

3. Problems and Applications Q3
Suppose that a rise in government purchases causes an expansion.
On the following graph, shift one or both curves to reflect the short-run effect of the rise in government purchases.
Price Level
Inflation Rate
In the short run, inflation
Quantity of Output
LRPC
Aggregate Supply
O
Aggregate Demand
Unemployment Rate
On the following graph, shift a curve or adjust the point to reflect the short-run effect of the rise in government purchases.
SRPC
C
and unemployment
Aggregate Demand
Aggregate Supply
SRPC
Short-Run Outcome
?
LRPC
Now suppose that over time, expected inflation changes in the same direction that actual inflation changes.

Now suppose that over time, expected inflation changes in the same direction that actual inflation changes.
On both of the previous graphs, shift the appropriate curve or curves to reflect the change that brings the economy to its long-run state.
After the expansion is over, the economy faces a
set of inflation-unemployment combinations.

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Step 1: Government spending

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Step 2: Shift in AD curve

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Step 3: Shift in short run Philip curve

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Step 4: Expected inflation and Actual inflation

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