In response to the deep recession that began in December 2007, U.S. President George W. Bush signed legislation in February 2008 to cut income taxes temporarily. One year later, U.S. President Barack Obama approved a much larger package of temporary tax cuts and increases in government spending to counter the economic slump. Assume that the economy had adjusted back to long-run equilibrium prior to the government interventions taking effect. So, starting from long-run equilibrium, where on the graph below would the economy be after this initial increase in government spending, ceteris paribus, but before any self-adjustment? 0. (Yp; πT) O. (YP; π3) O. (Y0; π2) O. (Y1; π1)
In response to the deep recession that began in December 2007, U.S. President George W. Bush signed legislation in February 2008 to cut income taxes temporarily. One year later, U.S. President Barack Obama approved a much larger package of temporary tax cuts and increases in government spending to counter the economic slump. Assume that the economy had adjusted back to long-run equilibrium prior to the government interventions taking effect. So, starting from long-run equilibrium, where on the graph below would the economy be after this initial increase in government spending, ceteris paribus, but before any self-adjustment? 0. (Yp; πT) O. (YP; π3) O. (Y0; π2) O. (Y1; π1)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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In response to the deep recession that began in December 2007, U.S. President George W. Bush signed legislation in February 2008 to cut income taxes temporarily. One year later, U.S. President Barack Obama approved a much larger package of temporary tax cuts and increases in government spending to counter the economic slump. Assume that the economy had adjusted back to long-run equilibrium prior to the government interventions taking effect. So, starting from long-run equilibrium, where on the graph below would the economy be after this initial increase in government spending, ceteris paribus, but before any self-adjustment?
0. (Yp; πT)
O. (YP; π3)
O. (Y0; π2)
O. (Y1; π1)
Transcribed Image Text:П3 д
П2
д1
no=&T
Yo
LRAS
.
үPYı
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