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Q. Assume that Country A has a population of 500000 moreover only produces one good car. Country A produced 100,000 cars every year. The people in Country A procure of 90000 cars although there are not enough cars to fulfill all demand. They make a decision to import 50000 extra. The government buys 25,000 cars for its police force also 10000 cars are purchased by companies to transport employees to other position to work. It also exports 65000 cars to nearby countries for sale.
In the short run go up if government purchases, what happens to GDP? Show this graphically.
If consumption and government purchases go up, what happens to GDP in the long run? Show this graphically.
Explain how does this relate to Keynesian economics?
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