For each question, suppose that the economy begins at the long-run equilibrium point A in the diagram

Question:

For each question, suppose that the economy begins at the long-run equilibrium point A in the diagram on the facing page. Identify which of the other points on the diagram-points B, C, D, or E-could represent a new long-run equilibrium after the described events take place and move the economy away from point A.

a. Significant productivity improvements occur, and the quantity of money in circulation increases.
b. No new capital investment takes place, and a fraction of the existing capital stock depreciates and becomes unusable. At the same time, the government imposes a large tax increase on the nation's households.
c. More efficient techniques for producing goods and services are adopted throughout the economy at the same time that the government reduces its spending on goods and services.