aWhat are the longrun macroeconomic goals What is longrun ma

a.What are the long-run macroeconomic goals? What is long-run macroeconomic equilibrium? How the goals are relate to the macroeconomic equilibrium?

b.Suppose that consumers and investors become pessimistic about the future health of the economy. What will happen to aggregate demand and to output?

Solution

a.The long run macro economic goals are Full employment. Stable prices. Steady growth and Stable interest rates

An unanticipated increase in aggregate demand will, in the short-run, lead to an output level that is greater than what is consistent with full employment. This occurs because price levels are different that what was anticipated by resource providers. There will be less unemployment than the \"natural rate\" of unemployment. There will be upward pressure on resource prices and interest rates, which will, over the long-run, result in a decrease in aggregate demand. Resource providers will make adjustments to the new price levels and output will decline to what is consistent with full employment. A new market equilibrium will occur at a higher price level. So in the long-run, inflation (higher prices) will be the major effect of the increase in aggregate demand.

b. As consumers become pessimistic about the future of the economy, they cut their expenditures so that aggregate demand shifts left and output falls. The president and Congress could adjust fiscal policy to increase aggregate demand. They could either increase government spending, or cut taxes, or both.