ECON 214 SET 2 ECON214 SET 2

1. What impact would a change that shifts an economy's production possibilities curve outward have on the long run aggregate supply curve? How have improvements in computer technology affected production possibilities and the long run aggregate supply curve? Explain

An outward shift of PPC implies greater output of goods. This will shift the LRAS to the right, so that greater output is possible with no change in resources levels.  Improvements in technology increase the productivity of existing resources so that long run output /supply rises and shifts LRAS to the right. 

2. Construct the AD, SRAS, and LRAS curves for an economy experiencing:

(a) full employment, -figure A

(b) an economic boom,-figure B

 and (c) a recession- figure C 

3. What is a budget deficit? How are budget deficits financed? Why do Keynesians believe that budget deficits will increase aggregate demand? 

4. When output and employment slowed in early 2008, the Bush Administration and the Democratic Congress passed a legislation sending households a check for $600 for each adult (and $300 per child). These checks were financed by borrowing. Would a Keynesian favor this action? Why or why not?