An article in the Wall Street Journal about the U.S. economy stated, “Fed officials have talked down the need for government tax and spending programs aimed at juicing short-term economic growth, calling instead for policies that would raise the economy’s long-term potential growth rate—the fastest pace it could expand without fueling too much inflation.”
a. What does “government tax and spending programs” mean? What does “juicing short-term economic growth” mean?
b. Draw a basic aggregate demand and aggregate supply graph to show how government tax and spending programs could “juice short-term economic growth.” Briefly explain what you are showing in your graph.
c. Draw a dynamic aggregate demand and aggregate supply graph to show the effect of policies that raise the economy’s long-term potential growth rate “without fueling too much inflation.” Briefly explain what you are showing in your graph.