Problem Set 2
Problem Set 2
Complete all questions listed below. Clearly label your answers
1. What impact would a change that shifts an economy's production possibilities curve outward have on the long run aggregate supply curve? How have improvements in computer technology affected production possibilities and the long run aggregate supply curve? Explain
The production of computers becomes easier and hence more units can be produced with the same amount of resources. Aggregate supply curve shifts to the right in the long run for the same reason (more can be produced using the same amount of resources in the long run). An outward shift usually represents economic growth.
2. Construct the AD, SRAS, and LRAS curves for an economy experiencing: (a) full employment, (b) an economic boom, and (c) a recession. (Graphs can be hand drawn or done by computer; label all curves and axes clearly.)
3. What is a budget deficit? How are budget deficits financed? Why do Keynesians believe that budget deficits will increase aggregate demand?
A budget deficit is when government spending exceeds government revenue in a given time period. Deficits are finance by a nation’s bonds. Keynesians believe that when aggregated demand exceeds productive capacity of an economy, the government can prevent inflation by reducing demand with a budget surplus that occurs due to less spending and higher taxes
4. When output and employment slowed in early 2008, the Bush Administration and the Democratic Congress passed a legislation sending households a check for $600 for each adult (and $300 per child). These checks were financed by borrowing. Would a Keynesian favor this action? Why or why not?
A Keynesian would favor this action since Keynesian economics favor government intervention during a time of crisis or recession.
This assignment is due by 11:59 p.m. (ET) on Monday of Module/Week 3.
Complete all questions listed below. Clearly label your answers
1. What impact would a change that shifts an economy's production possibilities curve outward have on the long run aggregate supply curve? How have improvements in computer technology affected production possibilities and the long run aggregate supply curve? Explain
The production of computers becomes easier and hence more units can be produced with the same amount of resources. Aggregate supply curve shifts to the right in the long run for the same reason (more can be produced using the same amount of resources in the long run). An outward shift usually represents economic growth.
2. Construct the AD, SRAS, and LRAS curves for an economy experiencing: (a) full employment, (b) an economic boom, and (c) a recession. (Graphs can be hand drawn or done by computer; label all curves and axes clearly.)
3. What is a budget deficit? How are budget deficits financed? Why do Keynesians believe that budget deficits will increase aggregate demand?
A budget deficit is when government spending exceeds government revenue in a given time period. Deficits are finance by a nation’s bonds. Keynesians believe that when aggregated demand exceeds productive capacity of an economy, the government can prevent inflation by reducing demand with a budget surplus that occurs due to less spending and higher taxes
4. When output and employment slowed in early 2008, the Bush Administration and the Democratic Congress passed a legislation sending households a check for $600 for each adult (and $300 per child). These checks were financed by borrowing. Would a Keynesian favor this action? Why or why not?
A Keynesian would favor this action since Keynesian economics favor government intervention during a time of crisis or recession.
This assignment is due by 11:59 p.m. (ET) on Monday of Module/Week 3.