What are the key differences between how we illustrate an expansionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?
What will be an ideal response?
In the basic aggregate demand and aggregate supply model, expansionary fiscal policy is illustrated by a rightward shift of the aggregate demand curve, with the short-run aggregate supply curve and long-run aggregate supply curve remaining stationary. The dynamic aggregate demand and aggregate supply model takes into account the economy experiencing continuing inflation from year to year and the economy experiencing long-run growth. In the dynamic model, expansionary fiscal policy is illustrated by a rightward shift of the aggregate demand curve, a rightward shift of the short-run aggregate supply curve, and a rightward shift of the long-run aggregate supply curve.
You might also like to view...
Which of the following statements is an example of the Fed's conditional commitment policy?
A) "In these circumstances, the Committee believes that policy accommodation can be maintained for a considerable period." B) "The Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time." C) "Policy accommodation can be removed at a pace that is likely to be measured." D) "The exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, and inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal."
In economics, capital is defined as
a. natural resources, such as water, oil, and iron ore b. the natural, unskilled abilities of people c. human creations used in the production process d. money and other financial assets e. the willingness of business owners to take risks
A competitive price-taker market in long-run equilibrium is described as efficient because firms
a. produce at the low point on their average cost curve. b. produce where marginal cost yields a profit. c. earn no more than the cost of capital. d. are not profitable.
Today's supply curve for gasoline could shift in response to a change in
a. today's price of gasoline. b. the expected future price of gasoline. c. the number of buyers of gasoline. d. All of the above are correct.