9. The economy is currently in the long-run macroeconomic equilibrium. a) Using a graph, show the economy's current state. b) Suppose, the government decides to raise the military spending. Using an appropriately labelled diagram explain what will happen in the economy now. c) What policies can the government take that might bring the economy back to long-run macroeconomic equilibrium? Show and explain the effect of one such policy with an appropriately labelled diagram. d) If the government did not intervene to close this gap, would the economy return to long-run macroeconomic equilibrium? Explain and illustrate with an appropriately labelled diagram.

9. The economy is currently in the long-run macroeconomic equilibrium. a) Using a graph, show the economy's current state. b) Suppose, the government decides to raise the military spending. Using an appropriately labelled diagram explain what will happen in the economy now. c) What policies can the government take that might bring the economy back to long-run macroeconomic equilibrium? Show and explain the effect of one such policy with an appropriately labelled diagram. d) If the government did not intervene to close this gap, would the economy return to long-run macroeconomic equilibrium? Explain and illustrate with an appropriately labelled diagram.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter26: The Neoclassical Perspective

Section: Chapter Questions

Problem 2SCQ: Legislation proposes that the government should use macroeconomic policy to achieve an unemployment...

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The task I am struggling with: The economy is in short-run macroeconomic equilibrium at point E1 in the accompanying diagram (see the picture). Based on the diagram, answer the following questions. a) Is the economy facing an inflationary or recessionary gap? b) What policies can the government implement that might bring the economy back to long-run macroeconomic equilibrium? Illustrate with a diagram. c) If the government did not intervene to close this gap, would the economy return to long-run macroeconomic equilibrium? Explain and illustrate with a diagram.Thank you very much for your help.
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