We know that if there is an increase in the general pricelevel, then

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School
Ogles School of Hair Design, Arlington TX **We aren't endorsed by this school
Course
ECN MACROECONO
Subject
Economics
Date
Nov 4, 2023
Pages
1
Uploaded by HighnessSnow18693 on coursehero.com
We know that if there is an increase in the general pricelevel, then aggregate demand (AD) decreases. Since AD=C+I+G+NX, thenit means that an increase in the price level causes a decrease in investment(I) and net exports (NX) a. Explain all the steps through which an increase in the price levelcauses a decrease in investment (I) b. Explain all the steps through which an increase in the price levelcauses a decrease in net exports Assume that the US economy is initially at equilibriumwith the intersection of AD, LRAS and SRAS. (a) Suppose the Congress decided to decrease G in order to balancthe budget. Using diagram explain how this action of the Congresswill affect the equilibrium and the following macroeconomic variables: Output, Price, and employment. (b) Using diagram explain how the Fed should respond to this situation in order to stabilize output and employment.
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