During the transition from the short run to the long run, price level expectations will (remain the same, increases, decreases), and the (aggregate demand, short-run aggregate supply) curve will shift to the (left, right). In the long run, as a result of the investment tax credit, the price level (remain the same, increases, decreases), the quantity of output (rises above, falls below, returns to) potential output, and the unemployment rate (rises above, falls below, returns to) the natural rate of unemployment. Again, the following graph shows the economy in long-run equilibrium at the expected price level of 120 and potential output of $300 billion before theincrease in investment spending due to the new tax credit.Now, show the long-run impact of the investment tax credit by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (SRAS) curve to the appropriate positions. (Note: Assume that the investment tax credit does not cause a change in the economy's resources,technology, or productivity.)240SRAS200AD160SRAS12080AD40100200300400500600REAL GDP (Billions of dollars)PRICE LEVEL During the transition from the short run to the long run, price level expectations willand thecurve will shift to theIn the long run, as a result of the investment tax credit, the price levelthe quantity of outputpotentialoutput, and the unemployment ratethe natural rate of unemployment.

The AD-AS is a macroeconomic model that determines the national output and the general price level…

Answered: Now, show the long-run impact of the…

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 5DQ

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During the transition from the short run to the long run, price level expectations will (remain the same, increases, decreases), and the (aggregate demand, short-run aggregate supply) curve will shift to the (left, right).

In the long run, as a result of the investment tax credit, the price level (remain the same, increases, decreases), the quantity of output (rises above, falls below, returns to) potential output, and the unemployment rate (rises above, falls below, returns to) the natural rate of unemployment.

Again, the following graph shows the economy in long-run equilibrium at the expected price level of 120 and potential output of $300 billion before the
increase in investment spending due to the new tax credit.
Now, show the long-run impact of the investment tax credit by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (
SRAS) curve to the appropriate positions. (Note: Assume that the investment tax credit does not cause a change in the economy's resources,
technology, or productivity.)
240
SRAS
200
AD
160
SRAS
120
80
AD
40
100
200
300
400
500
600
REAL GDP (Billions of dollars)
PRICE LEVEL

During the transition from the short run to the long run, price level expectations will
and the
curve will shift to the
In the long run, as a result of the investment tax credit, the price level
the quantity of output
potential
output, and the unemployment rate
the natural rate of unemployment.

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