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Using an aggregate demand and supply diagram, explain how each of the following scenarios affects the equilibrium price level and aggregate output. Consider first the short-run, then the long-run equilibrium for each scenario.
a) Consumers expect a recession, while resource prices rise at the same time.
b) Foreign income falls as domestic technology improves.
c) Foreign price level rises as domestic government cuts taxes.
d) Government spending falls and a higher future price level is expected.
e) Higher future income and lower price level are expected.
f) Resource prices fall and technology improves.
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1) Consumption is positively related to stock market wealth but negatively related to taxes and tax rates.
) Consider an economy where individuals live for 2 periods and have prefer- ences represented by ln(c) + ß ln(c') where c and c' represent consumption in the first and second perio
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