The following graph shows the economy in long-run equilibrium at an expected price level of 120 and potential output of $300 billion. Suppose the government implements a large investment tax credit, causing investment spending to increase. Shift the short-run aggregate supply (SRAS) curve or the aggregate demand (AD) curve to show the short-run impact of the investment tax credit on the graph. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. PRICE LEVEL 240 200 160 120 80 40 O 0 100 SRAS, SRAS 200 300 400 REAL GDP (Billions of dollars) AD₂ 500 600 AD SRAS ? In the short run, the increase in investment spending due to the new tax credit shifts the aggregate demand the price level to rise above the price level people expected, and the quantity of output to fall below credit will cause the unemployment rate to the natural rate of unemployment in the short run. curve to the right , causing potential output. The investment tax

The following graph shows the economy in long-run equilibrium at an expected price level of 120 and potential output of $300 billion. Suppose the government implements a large investment tax credit, causing investment spending to increase. Shift the short-run aggregate supply (SRAS) curve or the aggregate demand (AD) curve to show the short-run impact of the investment tax credit on the graph. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. PRICE LEVEL 240 200 160 120 80 40 O 0 100 SRAS, SRAS 200 300 400 REAL GDP (Billions of dollars) AD₂ 500 600 AD SRAS ? In the short run, the increase in investment spending due to the new tax credit shifts the aggregate demand the price level to rise above the price level people expected, and the quantity of output to fall below credit will cause the unemployment rate to the natural rate of unemployment in the short run. curve to the right , causing potential output. The investment tax

Macroeconomics: Principles and Policy (MindTap Course List)

13th Edition

ISBN:9781305280601

Author:William J. Baumol, Alan S. Blinder

Publisher:William J. Baumol, Alan S. Blinder

Chapter10: Bringing In The Supply Side: Unemployment And Inflation?

Section: Chapter Questions

Problem 3TY

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