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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 diagram is A. This graph indicates an increase in aggregate demand due to higher net exports. The aggregate supply (AS) remains unchanged in the long run, leading to a higher price level and increased real output.
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 that the economy operates at full employment. Thus, an increase in aggregate demand will not lead to an increase in real output since the economy's output is already at its potential. The long-run aggregate supply (LRAS) is vertical, showing that real output is unaffected by price level changes.
Step 3
Explain the impact of annual fiscal deficits on the US national debt.
Answer
Annual fiscal deficits tend to increase the national debt. This is primarily due to the government borrowing funds to cover shortfalls between its revenue and spending. Over time, persistent deficits compound, leading to a larger debt burden, which may result in higher interest rates and reduced public investment. Additionally, this can affect overall economic confidence and consumers' willingness to spend.