Question 3 (Equilibrium) Since the Covid-19 crisis is nearing an end, the government is planning to phase out government spending programs. In other words government spending is expected to decrease. Explain how this would affect the equilibrium using the two period macroeconomic model that you have learnt (Draw the graph for the change in equilibrium and explain how the variables change). Show the changes in both the labor market and the goods market using the 2 step approach (direct and indirect effects) Discuss the changes in 1. Output Y 2. Output demand Yp 3. Output supply Ys 4. Labor N 5. Labor demand Np 6. Labor supply Ns 7. Interest rater 8. Wage w Feel free to make assumptions (about whether substitution effect is stronger than income effect, whether change in output demand is greater than change in output supply and so on.

Question 3 (Equilibrium) Since the Covid-19 crisis is nearing an end, the government is planning to phase out government spending programs. In other words government spending is expected to decrease. Explain how this would affect the equilibrium using the two period macroeconomic model that you have learnt (Draw the graph for the change in equilibrium and explain how the variables change). Show the changes in both the labor market and the goods market using the 2 step approach (direct and indirect effects) Discuss the changes in 1. Output Y 2. Output demand Yp 3. Output supply Ys 4. Labor N 5. Labor demand Np 6. Labor supply Ns 7. Interest rater 8. Wage w Feel free to make assumptions (about whether substitution effect is stronger than income effect, whether change in output demand is greater than change in output supply and so on.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter24: The Aggregate Demand/aggregate Supply Model

Section: Chapter Questions

Problem 61P: Table 24.4 describes Santhers economy. Plot the AD/AS curves and identify the equilibrium. Would you...

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