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?
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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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Refer to the graph below showing the domestic demand and supply curves for a specific product in a hypothetical nation called Econland. If the world price for this product is $2.00, then Econland will:
A. Export 200 units
B. Export 400 units
C. Import 200 units
D. Import 400 units
When the housing market bubble burst, many people found that:
A. they owed more than their house was now worth. B. it was much easier to sell their home. C. the value of their homes exceeded their mortgage loans. D. there was a limited number of houses for sale.