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fiscal policy and the short-run aggregate supply curve

12. Explain how fiscal policy may possibly affect the short-run aggregate supply curve.
13. How does classical economics explain its confidence in the ability of natural forces to return the economy to its potential level of real GDP?
14. What were the reasons for establishing the Federal Reserve System as 12 Reserve banks rather than a single central bank in Washington?
15. What is meant by the "independence" of the Fed? Is the Federal Reserve independent? Explain why or why not.

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12. Many economists argue that the SRAS curve is only affected by changes in technology and resources. Thus only long-run government programs designed to support research and development and education could have an impact on aggregate supply. Others support "supply side economics," which suggests that lower tax rates on investors and entrepreneurs will move the supply curve outward. Lower income tax rates in general could even cause more people to enter the workforce, by affecting the labor/leisure tradeoff. This would expand a necessary resource for production, thus shifting the SRAS.

13. Classical economics is based on the assumption that adjustments in prices would automatically make demand tend to the full employment level. Known as Say's law, it states that the wages and profits paid out during the production of goods are equal to the total sum ...

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