The Keynesian Aggregate Supply Curve, and Practice
Suppose that we are in an economy with the following AD-AS curves:
p
AS
AD
Y
Now answer the following questions:
Suppose that the government is considering a stimulus program by increasing
(Desired) Government Spending.
a) What would we expect to happen to equilibrium prices (p) and national income (Y) in this case?
Suppose that the government is concerned with the inflation this might cause, and specifically that it will create too large a set of inflation for too little an
increase in national income.