From the following graph, identify the initial equilibri
Question and Solution
From the following graph, identify the initial equilibrium, the short-run equilibrium, and the long-run equilibrium base
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From the following graph, identify the initial equilibrium, the short-run equilibrium, and the long-run equilibrium based on the scenarios below. Explain your answers and identify what happens to the price level and aggregate output. Scenario 1. The economy is initially in long-run equilibrium at point A, and a cost shock causes cost-push inflation. The government reacts by implementing an expansionary fiscal policy. Scenario 2. The economy is initially in long-run equilibrium at point A, and an increase in government purchases causes demandpull inflation. In the long run, wages respond to the inflation. Scenario 3. The economy is initially in long-run equilibrium at pointC, and the federal government implements an increase in corporate taxes and personal income taxes. In the long run, firms and workers adjust to the new price level and costs adjust accordingly Scenario 4. The economy is initially in equilibrium at point C, and energy prices decrease significantly. The government reacts by implementing a contractionary fiscal policy
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