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Through the 1990s government purchases of goods declined as portion of overall output, in part because of the end of the cold war. If we ignore trade and treat the U.S. as a closed economy, what would be the predicted long-run result of this shift on (a) consumption, (b) output, (c) investment, (d) the real interest rate? If, instead, we treat the economy as a large open economy, what would be the predicted long-run result of this shift on (a) output, (b) consumption, (c) investment, (d) the real interest rate, and (e) the net rate of borrowing from or lending to foreigners? (Include the appropriate diagrams in each case).
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Draw an "aggregate supply-aggregate demand" diagram that shows an economy suffering from high levels of unemployment. Show the effects of the following events on the Aggregate Demand curve.
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