Suppose that the federal administration plans to fight a deep ongoing recession

Question

Suppose that the federal administration plans to fight a deep ongoing recession with a nationwide plan of increasing infrastructure. Congress approves it and adjusts the budget accordingly to put the plan in motion immediately. Aggregate demand spending components include consumption (C), investment (I), government (G), and exports (X) minus imports (M). Analyze what the aggregate demand and aggregate supply model predicts about the infrastructue plan to answer the following three questions. What happens to the level of G (it can increase (+), decrease (-) or stay constant (0)). What likely happens to the aggregate demand curve? What likely happens to the level of unemployment? The curve shifts to the right (an increase in AD) unemployment remains the same unemployment increases unemployment decreases The curve remains in the same spot The curve shifts to the left (a decrease in AD)

Explanation / Answer

1. Government spending will increase (+). Option A.

2.Since government spending is one of the components of AD, so Option A.

3. Option C. This is because increase in AD will induce firms to increase the level of production and thus hire more workers to meet the hike in demand.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

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