Assume the United States economy is currently at equilibrium.Using a correctly labeled aggregate demand and supply graph, show:Full employment output (yf)Current price level (PL1)The Russians have been threatening us for months, and the President orders and expansion of our military so that we can be prepared for war. On your graph from question 1, show what will happen in the economy, labeling the new equilibrium as Q2, PL2.Using a correctly labeled graph of the loanable funds market, show how the President's decision will affect the economy. Explain what happens.Based on your graph from #3, explain what life will be like in the US for people and businesses wishing to take out loans.What is the term for this situation?

When one combines the demand curves of different economic sectors, one gets what is known as the…

Answered: Using a correctly labeled aggregate…

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

Chapter27: Investment, The Capital Market, And The Wealth Of Nations

Section: Chapter Questions

Problem 1CQ

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Assume the United States economy is currently at equilibrium.

Using a correctly labeled aggregate demand and supply graph, show:
1. Full employment output (yf)
2. Current price level (PL1)
The Russians have been threatening us for months, and the President orders and expansion of our military so that we can be prepared for war. On your graph from question 1, show what will happen in the economy, labeling the new equilibrium as Q2, PL2.
Using a correctly labeled graph of the loanable funds market, show how the President's decision will affect the economy. Explain what happens.
Based on your graph from #3, explain what life will be like in the US for people and businesses wishing to take out loans.
What is the term for this situation?

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