On November 17, the White House announced that it “plans to spend billions expanding Covid vaccine manufacturing in the U.S.” Please explain answers by DRAWING graphs/models AND explaining shifts and effects on variables.

(a) Use the AD/AS model to predict the short-run and long-run effects of this fiscal shock on output, prices, real and nominal wages, employment, and unemployment, ignoring possible productivity effects. How will your answer change if infrastructure spending generates a positive productivity effect? Please explain answers by DRAWING the AD/AS model AND explaining shifts and effects on variables.

(b) The US is an open economy. Consider the open-economy IS/LM model and assume the dollar is freely floating. What will be the effects of this fiscal policy on US output and interest rates, the dollar exchange rate, and foreign (Rest-of-the-World) output and interest rates? Please explain answers by DRAWING IS/LM model AND explaining shifts and effects on variables.

(c) Use the Solow model to predict the effects of the higher government spending on US steady-state income per capita. [Hint: what is that fiscal policy’s effect on the US national saving rate?] How does your answer change if spending on vaccines also raises multifactor productivity? Please explain answers by DRAWING the Solow model AND explaining shifts and effects on variables.

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1Introduction The White House under the gun to build the stock of Covid immunizations to unfortunate countries plans to contribute billions of dollars to grow US fabricating limit determined to delive... View the full answer