Start by drawing the Short-Run Aggregate Supply and Aggregate Demand diagram with short-run equilibrium at Price Level = 165 and real GDP = 2750. Next, the following shock hits the economy:
Concerned about an economic slowdown possibly turning into a big recession, the federal government both increases spending on infrastructure and passes several different tax cuts.
Which of the outcomes below could be the new short-run equilibrium after the shock?
1. price level=175; real GDP=3000
2. price level=175; real GDP=2600
3. price level=155; real GDP=2825
4. price level=155; real GDP=2675