Economy’s production possibilities Essay

difficulty Set 2Complete all questions listed below. Clearly label your answers 1. What impact would a change that shifts an deliverys production possibilities curve outward have on the long run sum bring out curve? How have improvements in computer technology affected production possibilities and the long run aggregate supply curve? ExplainAnswer Growth of population and the labor-force participation rateCapital compendiumImprovements in technology2. Construct the AD, SRAS, and LRAS curves for an economy experiencing (a) full date, (b) an economic boom, and (c) a recession. (Graphs can be touch drawn or done by computer label all curves and axes clearly.)a=full employment b=boom c= recession3. What is a budget deficit? How are budget deficits financed? wherefore do Keynesians believe that budget deficits will increase aggregate demand?Answer A budget deficit occurs when the government spend exceeds government revenue in a given time period, ordinarily one year. Budget defi cits are financed by a countrys bonds. In the U.S., its financed by Treasury bills, notes and bonds. This is the governments way of printing money. Actually, it is creating more credit denominated in that countrys currency. However, it has the same effect it lowers the value of that countrys currency. As bonds flood the market, the supply outweighs the demand. The Keynesians believe that when aggregate demand exceeds productive capacity of the economy, the federal government can prevent inflationary overheating by reducing demand with a budget surplus generated by a combination of less spending and higher taxes.4. When output and employment slowed in early 2008, the Bush Administration and the Democratic Congress passed a legislation sending households a checkfor $600 for each adult (and $300 per child). These checks were financed by borrowing. Would a Keynesian favor this action? Why or why not?Answer No, the Keynesian would not obligate with this action because their opinion is generating a combination of less spending and higher taxes, not giving forward money.