Use the graph below to answer questions #4-5. This graph depicts the AD-AS model, which involves the Aggregate Demand curve (AD), Aggregate Supply curve (AS) and Long Run Aggregate Supply curve (LRAS). Our assumptions with this model match those from class. LRAS AS AD Assume in the multiple choice questions below that our starting point is pt A. Assume that in the months leading up to a major election, the Federal government enacts legislation that significantly increases government spending. Assume further that government pays for this spending by increasing the money supply. Based on our discussion of the self-correcting mechanism, how would this policy affect the graph in the short run and long run? Itranscript Oa. in the short run, AD will increase, but over the long run, AS will eventually shift upward as workers begin to ask for cost of living increases from their employers Ob. in the short run, AD will increase, but over the long run. AS will eventually shift leftward as workers begin to ask for cost of living increases from their employers Oc in the short run. AD will increase, then over the long run, AD will also eventually decrease as workers begin adjusting to the higher price level by spending less Od. in the short run, AD will increase, then over the long run, AD will eventually increase again as the initial increase in Income leads to greater expenditure by consumers Oe. in the short run, AD will increase, but over the long run, AS will eventually shift downward as firm costs begin to rise
Use the graph below to answer questions #4-5. This graph depicts the AD-AS model, which involves the Aggregate Demand curve (AD), Aggregate Supply curve (AS) and Long Run Aggregate Supply curve (LRAS). Our assumptions with this model match those from class. LRAS AS AD Assume in the multiple choice questions below that our starting point is pt A. Assume that in the months leading up to a major election, the Federal government enacts legislation that significantly increases government spending. Assume further that government pays for this spending by increasing the money supply. Based on our discussion of the self-correcting mechanism, how would this policy affect the graph in the short run and long run? Itranscript Oa. in the short run, AD will increase, but over the long run, AS will eventually shift upward as workers begin to ask for cost of living increases from their employers Ob. in the short run, AD will increase, but over the long run. AS will eventually shift leftward as workers begin to ask for cost of living increases from their employers Oc in the short run. AD will increase, then over the long run, AD will also eventually decrease as workers begin adjusting to the higher price level by spending less Od. in the short run, AD will increase, then over the long run, AD will eventually increase again as the initial increase in Income leads to greater expenditure by consumers Oe. in the short run, AD will increase, but over the long run, AS will eventually shift downward as firm costs begin to rise
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Use the graph below to answer questions #4-5. This graph depicts the AD-AS model, which involves the Aggregate Demand curve (AD), Aggregate Supply curve (AS) and Long Run Aggregate Supply curve (LRAS). Our
assumptions with this model match those from class.
LRAS
AS
AD
Assume in the multiple choice questions below that our starting point is pt A.
Assume that in the months leading up to a major election, the Federal government enacts legislation that significantly increases government spending. Assume further that government pays for this spending by
increasing the money supply. Based on our discussion of the self-correcting mechanism, how would this policy affect the graph in the short run and long run?
Itranscript
Oa. in the short run, AD will increase, but over the long run, AS will eventually shift upward as workers begin to ask for cost of living increases from their employers
Ob. in the short run, AD will increase, but over the long run. AS will eventually shift leftward as workers begin to ask for cost of living increases from their employers
Oc in the short run. AD will increase, then over the long run, AD will also eventually decrease as workers begin adjusting to the higher price level by spending less
Od. in the short run, AD will increase, then over the long run, AD will eventually increase again as the initial increase in Income leads to greater expenditure by consumers
Oe. in the short run, AD will increase, but over the long run, AS will eventually shift downward as firm costs begin to rise
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