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Aggregate supply and aggregate demand

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Using aggregate demand, short-run aggregate supply, and long-run aggregate supply curves, explain the process by which each government policies will move the enconomy from one long-run macroeconomic equilibruium to another. Illustrate with diagrams. In each case, what are the short-run and long-run effects on the aggregate price level and aggregate output?

a. There is an increase in taxes on household

b. There is an increase in the quanity of money

c. There is an increase in government purchases

Thank you for your help! This is difficult stuff.

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The response addresses the queries posted in 675 words with references.

//Here, with the help of aggregate demand, short-run aggregate supply and long-run aggregate supply curves; we will explain the process by which each of the Governmental policies move the economy from long-run macroeconomic equilibrium to another in different cases like when there is an increase in taxes on household.//

A. When the economy has high unemployment levels, the government can take fiscal measures to decrease the unemployment. During the recessions, government can increase the aggregate demand by increasing its spending or decreasing the tax rate. Employment opportunities will be created in the economy through the government spending and as a result, the disposable income and consumption in the economy will increase. (Farnham, 2002)

To finance the spending, government has to increase taxes. The purchasing power of the people will reduce with the increase in the taxes. As a result, the government spending would increase during the recession period but without an increase in taxes. During the ...

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Ashish Sharma, MBA (IP)
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  • MBA (IP), International Center for Internationa Business
  • BBA, University of Rajasthan
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