Long Run: Draw a long run aggregate supply curve. Draw an aggregate demand curve and label it ADI. Label the equilibrium price label and GDP. Show in a diagram how the effects of expansionary Fiscal Policy will affect the price level and GDP using long run AD/AS analysis. What can be said about the trade off between inflation and unemployment in this model?

Long Run: Draw a long run aggregate supply curve. Draw an aggregate demand curve and label it ADI. Label the equilibrium price label and GDP. Show in a diagram how the effects of expansionary Fiscal Policy will affect the price level and GDP using long run AD/AS analysis. What can be said about the trade off between inflation and unemployment in this model?

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter11: Fiscal Policy: The Keynesian View And Historical Development Of Macroeconomics

Section: Chapter Questions

Problem 9CQ

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Please note that this is a multi part quesition; thank you so much for your time and effort it means so much to me! Figure 1: Hayek’s (Classical) AD-AS Model (Image normally goes here) Part 1: Why does Hayek’s aggregate supply curve always lead to an equilibrium level of national output equal to the full-employment level of real GDP? Part2: Hayek says that markets will heal themselves and that government should not intervene. How does the AD-AS model reflect Hayek’s idea that governments cannot increase real GDP beyond the level that the free market economy is able to produce? Part 3: Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not?
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