Schools of Thought In Class Assignment 1. Assume the economy is currently in long and short...

 

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Schools of Thought In Class Assignment 1. Assume the economy is currently in long and short run equilibrium. a. Suppose that the government in this economy goes to war. Holding everything else constant, what do you predict will happen to real GDP and the aggregate price level in the short run? What type of gap is created? Use the AS/AD model to illustrate. a. According to a Classical economist, how can the economy move back to its potential? Explain how this self-correction of the economy occurs? Illustrate on the graph. What is the ending real GDP and aggregate price level? b. According to a Keynesian economist, what might prevent the economy from self-correcting back to its potential? What actions might they recommend that would close the gap all the way? Illustrate on the graph. What is the ending real GDP and aggregate price level? Schools of Thought In Class Assignment 1. Assume the economy is currently in long and short run equilibrium. a. Suppose that the government in this economy goes to war. Holding everything else constant, what do you predict will happen to real GDP and the aggregate price level in the short run? What type of gap is created? Use the AS/AD model to illustrate. a. According to a Classical economist, how can the economy move back to its potential? Explain how this self-correction of the economy occurs? Illustrate on the graph. What is the ending real GDP and aggregate price level? b. According to a Keynesian economist, what might prevent the economy from self-correcting back to its potential? What actions might they recommend that would close the gap all the way? Illustrate on the graph. What is the ending real GDP and aggregate price level?

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Schools of Thought Economic Impact of War Scenario The economy is initially in longrun and shortrun equilibrium The government goes to war increasing ... View the full answer