Reference no: EM133124213

An economy has a level of unemployment of 15%. The current level of GDP is 1000. The unemployment rate can be reduced if the current level of GDP goes up significantly. The team of economists Cleverecon argues that the level of the gross domestic product can be increased by 20% by expanding government purchases by 50. Another team of economist called Firstecon claim that the gross domestic product can be increased by 20% simply by depreciating the currency so that domestic producer can increase their level of exports. Both groups of economists base their reasoning on a Keynesian model.

1. a) Imagine you are a member of the Cleverecon group. Explain how you would try to convince the government that the proposed policy works. Use graphical analysis.

2. b) Imagine you are a member of the Firstecon group. Explain how would you try to convince the government that the proposed policy works. Use graphical analysis.

3. c) Imagine you a member of the government and have to evaluate the two proposals. Which ones are the pros and cons of each of the two proposals.