Assume that prices and wages adjust rapidly so that the markets for labor, goods and assets are always in equilibrium. What is the effect of a temporary increase in government purchases (G) on;real wage (w),full employment level of employment (LF)real output (YF),the real interest rate (r),current price level (P)inflation (Π)amount of investment (I)?Please explain with details how and why the change in a temporary increase in government purchases (G) affects each market (labor, goods and assets markets) by using graphs.

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Answered: Assume that prices and wages adjust…

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter10: Aggregate Supply

Section: Chapter Questions

Problem 1.2P

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Assume that prices and wages adjust rapidly so that the markets for labor, goods and assets are always in equilibrium. What is the effect of a temporary increase in government purchases (G) on;

real wage (w),
full employment level of employment (L^F)
real output (Y^F),
the real interest rate (r),
current price level (P)
inflation (_Π)
amount of investment (I)?

Please explain with details how and why the change in a temporary increase in government purchases (G) affects each market (labor, goods and assets markets) by using graphs.

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