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2 (a) Which one of the following diagrams illustrates the impact of an increase in net exports along a Keynesian long-run aggregate supply curve? A B C D (b) Using the classical long-run aggregate supply curve, explain what will happen in the long run to real output if aggregate demand increases - Edexcel - A-Level Economics A - Question 2 - 2021 - Paper 2
Question 2
2 (a) Which one of the following diagrams illustrates the impact of an increase in net exports along a Keynesian long-run aggregate supply curve? A B C D ... show full transcript
Worked Solution & Example Answer:2 (a) Which one of the following diagrams illustrates the impact of an increase in net exports along a Keynesian long-run aggregate supply curve? A B C D (b) Using the classical long-run aggregate supply curve, explain what will happen in the long run to real output if aggregate demand increases - Edexcel - A-Level Economics A - Question 2 - 2021 - Paper 2
Step 1
Which one of the following diagrams illustrates the impact of an increase in net exports along a Keynesian long-run aggregate supply curve?
Answer
The correct answer is A. This diagram illustrates the appropriate changes in the aggregate demand (AD) curve in response to an increase in net exports, showing a rightward shift of AD as the economy moves toward a new equilibrium along the Keynesian long-run aggregate supply curve.
Step 2
Using the classical long-run aggregate supply curve, explain what will happen in the long run to real output if aggregate demand increases.
Answer
In the long run, classical economists believe the economy operates at full employment, which means that an increase in aggregate demand does not alter the level of real output. Instead, it leads to an increase in the price level, as the aggregate supply curve is vertical at full employment. The new equilibrium results in a higher price level without any change in real output.
Step 3
Explain the impact of annual fiscal deficits on the US national debt.
Answer
Annual fiscal deficits contribute to an increase in the US national debt. When the government spends more than it collects in revenue, it borrows to cover the difference, thereby adding to the national debt. This can lead to higher interest payments in the future and may influence investor confidence and consumption patterns. The continuous accumulation of debt also raises concerns about fiscal sustainability.