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    Aggregate Supply/Demand And Loanable Funds Model

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    My question has 2 parts to it.

    Say there is an annual event that brings a state over 40 million dollars on the week that it runs, bringing tourists from all over the world to the event and millions of dollars from television coverage.

    What is the expended change to gross product and the price level likely to be in the short run? How can this be illustrated by an aggregate demand and supply model?

    If I assume that the expenditure by the government on this event increases the government's deficit. what will be the likely effect on private sector savings and investment using the loanable funds model?

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    Solution Preview

    When there is a sudden influx of people to the area, there is increased demand for goods and services. This shifts out the demand curve. Since the supply curve would not shift (due to this being a one time event) we would see the equilibrium price level increase. This is due to the downward slope of the demand curve, and the upward slope of the supply curve. See the attached file. When demand increases, a higher price level and a greater amount of goods are purchases, holding ...

    Solution Summary

    The aggregate supply/ demand and loanable funds model is examined.