Assume the U.S. economy is In both short-run and long-run equilibrlum, as shown

Question

Assume the U.S. economy is In both short-run and long-run equilibrlum, as shown In the graph below. Now suppose the federal government Increases the amount of taxes In the economy a. Use the graph provided to show the effects on the short-run equlbrlum as a result of thlis change In taxes. Draw the appropriate new AD curve or AS curve from the change In taxes. Instructions: Use the tool provided New Curve to plot the appropriate ne. Ater placing the curve, double cick or tap the question marks next to it and choose whether to label the curve as AD1 or AS1from the dropdown. AD and AS in the United States Tools LRAS AS New Curve Real GDP Y b. In the short run, the economy will experlence a rece Long-run economic growtnas real GDP ecreases as real GDP , which will be followed by back to the full-employment level

Explanation / Answer

When amount of taxes increases, aggregate demand falls and so AD curve shifts downwards. In the short run economy will experience a recession because real GDP falls which will be followed by expansion as real GDP increases back to the full employment level.

Your answer to part b is correct.

your answer to part C is wrong because long run aggreagte growth is associated with shifting of the long run AS curve but here only the short run AS curve shifts. Also for part d the answer is increases and not decreases because the the long run economy goes to full employment level of output.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.