Suppose the closed economy is in long-run equilibrium. Immigration of skilled workers shifts the long-run aggregate supply curve $60 billion to the right. At the same time, government purchases increase by $40 billion. If the MPC equals 0.75 and the crowding-out effect is $160 billion, what would we expect to happen in the long-run to real GDP and the price level? a. Both real GDP and the price level would be higher. b. Real GDP would be higher, but the price level would be the same. c. Real GDP would be higher, but the price level would be lower. d. Both real GDP and the price level would be lower.

Suppose the closed economy is in long-run equilibrium. Immigration of skilled workers shifts the long-run aggregate supply curve $60 billion to the right. At the same time, government purchases increase by $40 billion. If the MPC equals 0.75 and the crowding-out effect is $160 billion, what would we expect to happen in the long-run to real GDP and the price level? a. Both real GDP and the price level would be higher. b. Real GDP would be higher, but the price level would be the same. c. Real GDP would be higher, but the price level would be lower. d. Both real GDP and the price level would be lower.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 1TY

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