What are the key differences between how we illustrate a contractionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?
What will be an ideal response?
In the basic aggregate demand and aggregate supply model, contractionary fiscal policy is illustrated by a leftward shift of the aggregate demand curve, with the short-run aggregate supply curve and long-run aggregate supply curve remaining stationary. The dynamic aggregate demand and aggregate supply model takes into account the economy experiencing continuing inflation from year to year and the economy experiencing long-run growth. In the dynamic model, contractionary fiscal policy is illustrated by a rightward shift of the aggregate demand curve which is less than the rightward shifts of the short-run aggregate supply curve and the long-run aggregate supply curve.
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All of the following, except one, would increase the demand for a particular model of a Ford automobile. Assume that this model is a normal good. Which is the exception?
a. an increase in buyers' incomes b. increased prices of other Ford models c. an expected future increase in the price d. an increase in the U.S. population e. a decrease in the price of steel
Assume that foreign capital flows from a nation increase due to political uncertainly and increased risk. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the GDP Price Index and current international transactions balance in the context of the Three-Sector-Model? a. The GDP Price Index falls and current international transactions
balance becomes more positive (or less negative). b. The GDP Price Index rises and current international transactions balance becomes more negative (or less positive). c. The GDP Price Index and current international transactions balance remain the same. d. The GDP Price Index rises and current international transactions balance remains the same. e. There is not enough information to determine what happens to these two macroeconomic variables.