Change in short run aggregate supply-demand-pull inflation

Reference no: EM13685328

1. The United States is in long run equilibrium. Graph this below

2. Now the US government discovers that many US states will have budgetary shortfalls for the regular maintenance of freeways. In an emergency move the government surprises businesses with a tax increase on gasoline for the next two years. The government does not immediately spend the tax revenue. Of what is this example?

3. Show this on the above graph.

What is the overall effect on prices, output and employment?

4. We have seen two causes of inflation in cost-push and demand-pull. One is related to a change in aggregate demand (AD) while the other is related to a change in short run aggregate supply (SRAS).

Which way does AD move to create inflation in demand-pull inflation?

5. Which way does SRAS move to create inflation in cost-push inflation?

Reference no: EM13685328

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