A macroeconomist suggests that, since aggregate output and employment have decreased, the government should increase expenditures on goods and services to increase both output and employment. Suppose that output and employment fell because of a sectoral shock.
(a) Determine, using diagrams, what the net effects on output, employment, consumption, investment, the real interest rate, and the real wage, would be of such a policy, combined with the sectoral shock.
(b) Do you think such a policy is appropriate? Why or why not?