What are the key differences between how we illustrate an expansionary 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, expansionary fiscal policy is illustrated by a rightward 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, expansionary fiscal policy is illustrated by a rightward shift of the aggregate demand curve, a rightward shift of the short-run aggregate supply curve, and a rightward shift of the long-run aggregate supply curve.
You might also like to view...
Who decides whether a movie is going to be a blockbuster? How do you think the creation of a blockbuster movie influences what, how, and for whom goods and services are produced?
What will be an ideal response?
A U.S. firm produces sweatshirts in the first quarter of 2010 and adds them to its inventory. In the second quarter of 2010 the firm sells the sweatshirts to consumers. In which quarter(s) does(do) these transactions raise consumption?
a. the first and the second b. the first but not the second c. the second but not the first d. neither the first nor the second