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Assume that the United States Economy is in a recession in short run equilibrium.
a. Draw correctly labeled graph of aggregate demand and aggregate supply in the recession and show each of the following
(i) The long run equilibrium output, labeled y1
The current equilibrium output and price levels, labeled ye and PLe respectively
b. Suppose to address recession government increases spending by $400 million with no additional tax revenues. Show the impact of this fiscal policy on your graph.
c Due to this increase in government spending what impact does this action have on the real interest rate in the loanable funds market?
d based on the change in real interest rate in your answer in part C what impact does this have on business investment in the US
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