ECON

Problem Set 2

Complete all questions listed below. Clearly label your answers

1.     What impact would a change that shifts an economy's production possibilities curve outward have on the long run aggregate supply curve? How have improvements in computer technology affected production possibilities and the long run aggregate supply curve? Explain

2.     Construct the AD, SRAS, and LRAS curves for an economy experiencing: (a) full employment, (b) an economic boom, and (c) a recession. (Graphs can be hand drawn or done by computer; label all curves and axes clearly.)

3.     What is a budget deficit? How are budget deficits financed? Why do Keynesians believe that budget deficits will increase aggregate demand?

4.     When output and employment slowed in early 2008, the Bush Administration and the Democratic Congress passed a legislation sending households a check for $600 for each adult (and $300 per child). These checks were financed by borrowing. Would a Keynesian favor this action? Why or why not?

This assignment is due by 11:59 p.m. (ET) on Monday of Module/Week 3.