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 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 is because diagram A shows an upward sloping Keynesian long-run aggregate supply curve, reflecting that with an increase in net exports, aggregate demand shifts to the right, leading to higher output levels without causing inflation.
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 will be no change in real output. Classical economists argue that the economy operates at full employment in the long run. Thus, even if aggregate demand increases, it will only affect the price level, not the output.
Illustration:
A diagram showing a vertical long-run aggregate supply curve at full employment can be used to illustrate this point.
Step 3
Explain the impact of annual fiscal deficits on the US national debt.
Answer
Annual fiscal deficits are likely to increase the US national debt. When the government spends more than its revenue, it borrows to cover the gap, resulting in an accumulation of debt.
This could lead to:
- A negative wealth effect, as rising debt levels may reduce consumer confidence and spending.
- Higher interest rates in the long run, which can crowd out private investment.