Reference no: EM131405643
Suppose Germany's economy is at full employment. And that the populist right anti-Europe, anti-Euro, anti-NATO Front National party loses the French presidential elections later this year, which produces a positive demand shock in Germany and in all of Europe.
(a) Show the effect of these events on Germany's aggregate demand in the short run? (Make sure you draw the appropriate diagram.)
(b) If the Germany government does nothing else, show (and explain) in a diagram how output (GDP = income) will return to its long-run potential level of GDP, Y*.
(c) Given your answer to (a), what might a Keynesian sympathizer recommend be done?
(d) Given your answer to (a), what might a Neoclassical sympathizer recommend be done, if anything?
(e) Given your answers to (c) and (d), which of the two makes the most sense to you? Why?
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