Question

For each of the following draw an AD/AS diagram and a corresponding Phillip’s curve assuming the following:

• Suppliers produce more goods and services when price increases;
• actual GDP is 9,200;
• (3) Full employment GDP is 10,000;
• the natural rate of unemployment is 5%; and
• wages are not fully flexible.

1) Assume actual GDP is at 9,200, show in both diagrams the effect of the Federal Reserve Bank INCREASE MONEY supply in banks.

2) Again assume actual GDP 9,200, in both diagrams show the effect if the government did nothing.

3) Again assume actual GDO is at 9,200, in both diagrams show the effect if the government increase income taxes.

4) Show in both diagrams the effect of an increase in government purchases that pushes actual GDP up to full employment.

Answer 1