13. Using aggregate demand, short-run aggregate supply, and long-run aggregate s

Question

13. Using aggregate demand, short-run aggregate supply, and long-run aggregate
supply curves, explain the process by which each of the following government
policies will move the economy from one long-run macroeconomic equilibrium to
another. Illustrate with diagrams. In each case, what are the short-run and long-run
effects on the aggregate price level and aggregate output?

a. There is an increase in taxes on households.
b. There is an increase in the quantity of money.
c. There is an increase in government spending.

Explanation / Answer

c. There is an increase in government spending

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