Economy’s production possibilities Essay

Problem Set 2
Complete all inquiries listed below. Clearly label your replies 1. What impact would a alteration that shifts an economy’s production possibilities curve outward have on the long tally aggregate supply curve? How have betterments in computing machine engineering affected production possibilities and the long tally aggregate supply curve? Explain

Answer: Growth of population and the labor-force engagement rate

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Capital accretion
Improvements in engineering

2. Construct the AD. SRAS. and LRAS curves for an economic system experiencing: ( a ) full employment. ( B ) an economic roar. and ( degree Celsius ) a recession. ( Graphs can be manus drawn or done by computing machine ; label all curves and axes clearly. )

a=full employment ; b=boom ; c= recession

3. What is a budget shortage? How are budget shortages financed? Why do Keynesians believe that budget shortages will increase aggregative demand?

Answer: A budget shortage occurs when the authorities disbursement exceeds authorities gross in a given clip period. normally one twelvemonth. Budget shortages are financed by a country’s bonds. In the U. S. . it’s financed by Treasury measures. notes and bonds. This is the government’s manner of publishing money. Actually. it is making more recognition denominated in that country’s currency. However. it has the same consequence — it lowers the value of that country’s currency. As bonds flood the market. the supply outweighs the demand. The Keynesians believe that when aggregative demand exceeds productive capacity of the economic system. the federal authorities can forestall inflationary overheating by cut downing demand with a budget excess generated by a combination of less disbursement and higher revenue enhancements.

4. When end product and employment slowed in early 2008. the Bush Administration and the Democratic Congress passed a statute law directing families a cheque for $ 600 for each grownup ( and $ 300 per kid ) . These cheques were financed by borrowing. Would a Keynesian favour this action? Why or why non?

Answer: No. the Keynesian would non hold with this action because their sentiment is bring forthing a combination of less disbursement and higher revenue enhancements. non giving off money.


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