Consider an economy currently in long-run equilibrium at an aggregate real output of $5 trillion and...
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Consider an economy currently in long-run equilibrium at an aggregate real output of $5 trillion and a Real GDP of 80. Suppose the government wishes to further raise Real GDP by implementing a series of expansionary fiscal and monetary policies. The following graphs represent two possible paths that the economy may follow in response to the actions taken by the government. Each graph shows the economy's long-run aggregate supply curve (LRAS), its initial aggregate demand curve (labeled AD, ), its aggregate demand curve after fiscal and monetary expansion (labeled AD2), its initial short-run aggregate supply curve (labeled SRAS1), and its short-run aggregate supply curve after workers have responded to the fiscal and monetary policies (labeled SRAS:). Path 1 Path 2 LRAS LRAS 200 200 180 180 SRAS, SRAS, 160 160 140 140 SRAS, SRAS, 120 120 100 100 AD AD2 80 80 60 60 AD, AD, 40 40 20 20 9 10 1 2 3 4 5 7 234 56 7 10 REAL GDP (Trilions of dollars) REAL GDP (Trillions of doilars) Which path is the economy most likely to take if every worker in the economy behaves according to the theory of adaptive expectations? O Path 1 O Path 2 PRICE LEVEL PRICE LEVEL Consider an economy currently in long-run equilibrium at an aggregate real output of $5 trillion and a Real GDP of 80. Suppose the government wishes to further raise Real GDP by implementing a series of expansionary fiscal and monetary policies. The following graphs represent two possible paths that the economy may follow in response to the actions taken by the government. Each graph shows the economy's long-run aggregate supply curve (LRAS), its initial aggregate demand curve (labeled AD, ), its aggregate demand curve after fiscal and monetary expansion (labeled AD2), its initial short-run aggregate supply curve (labeled SRAS1), and its short-run aggregate supply curve after workers have responded to the fiscal and monetary policies (labeled SRAS:). Path 1 Path 2 LRAS LRAS 200 200 180 180 SRAS, SRAS, 160 160 140 140 SRAS, SRAS, 120 120 100 100 AD AD2 80 80 60 60 AD, AD, 40 40 20 20 9 10 1 2 3 4 5 7 234 56 7 10 REAL GDP (Trilions of dollars) REAL GDP (Trillions of doilars) Which path is the economy most likely to take if every worker in the economy behaves according to the theory of adaptive expectations? O Path 1 O Path 2 PRICE LEVEL PRICE LEVEL
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The economy is curnenty im LR equihbhium at an aggmegate meal output of 5 trillion ... View the full answer
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