Suppose that the economy is experiencing the short-run equilibrium position depicted at point B in the diagram at the left. 1) Using the line drawing tool, show the effects of an increase in the government deficit on equilibrium GDP and the price level. Properly label this line. 2) Using the point drawing tool, identify the new short-run equilibrium. Label this point 'E'. 3) Using the point drawing tool, identify the new long-run equilibrium. Label this point 'F'. Carefully follow the instructions above, and only draw the required objects.
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Using the line drawing tool, draw a new AD curve labeled "AD2" that is shifted to the right of the original AD curve. This shift represents an increase in government spending or a decrease in taxes, which increases aggregate demand at every price level. Show more…
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The graph shows the economy in long-run equilibrium at point A. Now assume that there is a large increase in demand for U.S. exports. 1.) Use the line drawing tool to show the resulting short-run equilibrium on your diagram. Label any new aggregate demand or aggregate supply curve as AD, SRAS or LRAS as appropriate. 2.) Use the point drawing tool to locate the new short-run equilibrium point. Label this point B. Now consider the adjustment of the economy back to long-run equilibrium. 3.) Use the line drawing tool to show the resulting long-run equilibrium on your diagram. Label any new aggregate demand or aggregate supply curve appropriately. 4.) Use the point drawing tool to locate the new long-run equilibrium point. Label this point C. Carefully follow the instructions above, and only draw the required objects.
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