Economy’s production possibilities Essay

Problem Set 2Complete in all questions listed below. Clearly label your answers 1. What impact would a change that shifts an economys production possibilities abbreviate outward have on the long scarper aggregate supply curve? How have improvements in computer engine room affected production possibilities and the long run aggregate supply curve? ExplainAnswer Growth of population and the labor-force participation rate crown accumulationImprovements in technology2. Construct the AD, SRAS, and LRAS curves for an economy experiencing (a) full concern, (b) an stinting boom, and (c) a recession. (Graphs can be hand drawn or do by computer label all curves and axes clearly.)a=full employment b=boom c= recession3. What is a budget famine? How are budget dearths financed? Why do Keynesians believe that budget deficits pass on increase aggregate demand?Answer A budget deficit occurs when the brass spending exceeds government revenue in a presumptuousness time period, usually one ye ar. Budget deficits are financed by a farmings bonds. In the U.S., its financed by Treasury bills, notes and bonds. This is the governments way of printing money. Actually, it is creating more credit denominated in that countrys currency. However, it has the same effect it lowers the value of that countrys currency. As bonds flood the market, the supply outweighs the demand. The Keynesians believe that when aggregated demand exceeds productive susceptibility of the economy, the federal government can prevent inflationary overheating by reducing demand with a budget surplus generated by a combination of less spending and higher taxes.4. When output and employment slowed in early 2008, the Bush Administration and the Democratic Congress passed a jurisprudence sending households a checkfor $600 for each adult (and $300 per child). These checks were financed by borrowing. Would a Keynesian favor this action? Why or why not?Answer No, the Keynesian would not agree with this action be cause their intellection is generating a combination of less spending and higher taxes, not talent away money.