Photo AI
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 - 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 - 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 that illustrates the impact of an increase in net exports along a Keynesian long-run aggregate supply curve is A. This is because the increase in net exports will lead to an increase in aggregate demand, depicted by a rightward shift of the AD curve while maintaining the Keynesian shape of the AS 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, there would be no change in real output, as classical economists believe the economy will be at full employment. This means that any increase in aggregate demand will primarily lead to an increase in the price level rather than an increase in output. Hence, the classical long-run aggregate supply curve remains vertical at full employment 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. As the government spends more than it receives in revenue, it must borrow to finance the deficit, leading to a rising national debt. This has implications such as reduced national savings and potential increases in interest rates, which may hinder future economic growth. Additionally, it can affect consumer confidence and spending as households may anticipate higher taxes in the future to pay off the debt.