Without notice, investment spending dramatically rises in the United States.
a) Using a correctly drawn AD/AS graph, explain the short-run impact of this sudden increase in investment spending on each of the following for the United States.
- Output
- Price Level
b) Explain how the resultant change represented by the AD/AS graph will affect the credit market (borrowers, savers, and lenders). Are they helped or hurt? Hint: Recall that "how" means "how and why."