What are the key differences between how we illustrate a ...

[audragclark]

What are the key differences between how we illustrate a contractionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?
 
  .
 
  What will be an ideal response?

Question 2

If the consumption function is defined as C = 7,250 + 0.8Y, what is the value of the multiplier?
 
  A) 0.2 B) 0.8 C) 1.25 D) 5

[joshraies]

Answer to Question 1

In the basic aggregate demand and aggregate supply model, contractionary fiscal policy is illustrated by a leftward shift of the aggregate demand curve, with the short-run aggregate supply curve and long-run aggregate supply curve remaining stationary. The dynamic aggregate demand and aggregate supply model takes into account the economy experiencing continuing inflation from year to year and the economy experiencing long-run growth. In the dynamic model, contractionary fiscal policy is illustrated by a rightward shift of the aggregate demand curve which is less than the rightward shifts of the short-run aggregate supply curve and the long-run aggregate supply curve.

Answer to Question 2

D