Question

1.The Keynesian AEmodel is a basic representation of the economy in a situation where,for whatever reason, prices don’t change.A.Show, in an AEdiagram, the change in equilibrium Yfrom a given increase inautonomous expenditure. (6 points)B.This simple Keynesian result relies on prices not changing when Yincreases. One reason prices wouldn't change is that input costs don't change. Explain why an increase in GDP might not lead to increased costs for producers. Hint: The economy is operating inside the PPF.

Answer 1

Answer:

picture of the graph is attached

Explanation:

Because it is an autonomous increase in spending, for the economy operating under production possibilities frontier there is still potential to move to the point on PPF. An autonomous increase in government spending will help the economy to realize its potential using all the resources efficiently. So, when the producers are underutilizing the factors of production a rise in govt spending won’t raise costs.