Consider a fictional economy that is operating at its long-run equilibrium. The following graph shows the aggregate demand (AD) curve and short-run aggregate supply (AS) curve for the economy. The long-run aggregate supply curve is represented by a vertical line at the potential GDP level of $6 trillion. The economy is initially producing at potential GDP. Suppose that fiscal authorities decide to decrease marginal tax rates. Assume that this change in marginal tax rates is perceived as a long-term change. Shift the appropriate curves to illustrate the supply-side view of the fiscal policy effect on output and the price level. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. 20 120 100 80 PRICE LEVEL 88 40 20 2 Potential GDP AS AD 6 8 AD 10 12 QUANTITY OF OUTPUT (Trillions of dollars) 口 AS S Potential GDP True or False: Supply-side economics is a long-run, growth-oriented strategy. True False ?

Suppose that the government engages in expansionary fiscal policy by increasing government spending. Show the initial impact by properly shifting the aggregate demand curve (AD), the short-run aggregate supply curve (SRAS), or the long-run aggregate supply curve on the graph below. Aggregate price level (P) LRAS SRAS * AD Aggregate output (Q)

The policies of the federal government influence the outcomes of the various activities in that economy.  When government policies change or unplanned events occur, the resulting economic events or activity will usually change.  Listed below is a policy or event that affect the performance of the economy: The level of investment decreases because of a lack of confidence in the economy. for the question above, describe what would be the likely outcome in the economy.  Use the appropriate tools of analysis, such as aggregate demand and aggregate supply where appropriate, to justify and explain your answer.

• Assuming that there is no government spending or trade, an economy's GDP is the sum of domestic consumption C and investment I, ie. Y = C+ I • Assume that I is unaffected by GDP • Assume the consumption function is C = co + cY • In any equilibrium aggregate demand, AD must be equal to Y, GDP. Given this model, which of the following statements is correct? This question is worth 2 marks! Select one or more: a. The aggregate demand equation is given by AD = co + CY + I b. c, is equal to autonomous consumption c. if c, is a number between 0 and 1, and I+co >0 then the aggregate demand equation is a straight line that must intersect the 45 degree line at some point. d. In a demand-driven economy the AD curve is a vertical line e. In a demand-driven economy demand is equal to supply in equilibrium f. In a supply-driven economy demand is equal to supply in equilibrium g. In a demand-driven economy, supply creates its own demand h. If the economy above is a demand-driven economy, then the…