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Practice Question #1

LRAS. Price Level. SRAS 1. PL F. AD. Y F. Real GDP (GDP R ). Practice Question #1. Assume the economy is in equilibrium at full employment . If government spending (G) increases due to an outbreak of war, what is the impact of the spending on price level, output, and unemployment?

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Practice Question #1

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  1. LRAS Price Level SRAS1 PLF AD YF Real GDP (GDPR) Practice Question #1 • Assume the economy is in equilibrium at full employment. If government spending (G) increases due to an outbreak of war, what is the impact of the spending on price level, output, and unemployment? • What economic condition or problem results? ____ ____ ____ Price Level ____ Output ____ Unemployment Problem:

  2. LRAS Price Level SRAS PLF AD1 YF Real GDP (GDPR) Practice Question #2 • Assume the economy is in equilibrium at full employment. If consumer indebtedness rises, what is the impact of the indebtedness on the price level, output, and unemployment? • What economic condition or problem results? ____ ____ ____ Price Level ____ Output ____ Unemployment Problem:

  3. LRAS Price Level SRAS1 PLF AD YF Real GDP (GDPR) Practice Question #3 • Assume the economy is in equilibrium at full employment. If OPEC restricts the supply of oil and raises energy costs across the economy, what is the impact of the higher production costs on price level, output, and unemployment? • What economic problem/condition results? ____ ____ ____ Price Level ____ Output ____ Unemployment Problem:

  4. LRAS Price Level SRAS PL1 AD1 Y1 Real GDP (GDPR) Practice Question #4 • Assume the economy is in a recession. If government reduces personal income taxes, what is the impact of the tax cut on price level, output, and unemployment? • What economic condition may result? ____ ____ ____ Price Level ____ Output ____ Unemployment Condition:

  5. LRAS Price Level SRAS PL1 AD1 Y1 Real GDP (GDPR) Practice Question #5 • Assume the economy is overheated and experiencing serious demand-pull inflation. If the FED increases interest rates by reducing the money supply, what will be the impact of the FED action on the price level, output, and unemployment? • What problem or condition may result? ____ ____ ____ Price Level ____ Output ____ Unemployment Condition:

  6. LRAS Price Level SRAS1 PLF AD YF Real GDP (GDPR) Practice Question #6 • Assume the economy is in equilibrium at full employment. If productivity increases due to technological developments, what is the impact of the increased productivity on the price level, output, and unemployment? ____ ____ ____ Price Level ____ Output ____ Unemployment

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