Suppose at the current equilibrium the economy is experiencing a constant inflation rate. The government wants to increase expenditures to avoid possible economic recession arising from an economic crisis. Using the IS-LM-PC framework, a. Discuss the economic effects of the policy in the short run. What happens to consumption and investment?

Suppose at the current equilibrium the economy is experiencing a constant inflation rate. The government wants to increase expenditures to avoid possible economic recession arising from an economic crisis. Using the IS-LM-PC framework, a. Discuss the economic effects of the policy in the short run. What happens to consumption and investment?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Labor Force Participation Rate analysis

The labor force participation rate analysis calculates the percentage of the working-age population either employed or actively seeking work. It can be anyone in the age category of 16 to 64, on the condition that they are not institutionalized. A high labor force participation rate shows that more people are employed and contributing their wages to the economy, making it a healthy economy. It also shows that there are more people actively looking for employment leading to more hiring options for employers. On the other hand, a low labor force participation rate shows a low number of people employed or looking for work. This leads to an economic setback with fewer wages going into the economy. In such a scenario, employers might have to cut back on profits, lay off employees, or stop the process of hiring.

Question

Suppose at the current equilibrium the economy is experiencing a constant inflation rate. The
government wants to increase expenditures to avoid possible economic recession arising from
an economic crisis. Using the IS-LM-PC framework,
a. Discuss the economic effects of the policy in the short run. What happens to consumption
and investment?

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see attached
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