macro economics help?
Assume the current economy is such that we are in the Keynesian range of the aggregate supply curve. If the government decides to double its spending on defense, how do you predict this will effect unemployment numbers, GDP, and CPI?
Update:please explain, I do not fully understand economics.
More Questions From This User See All
Answers & Comments
Verified answer
GDP or national income/output can be calculated by
C+I+G+NX
C=consumption
I=investment
G=govt ependiture
NX=nett exports ie exports-imports
So, defense spending is a component of G so doubling this leads to an increase in GDP
Increase in GDP will temporarily push unemployment below natural level and a positive output gap. This is what is observed in about 8-9 out of 10 data sets->empirical evidence
It will decrease unemployment, increase GDP and CPI.It's called multiplier effects.