Question 1: Given the information below, use the AS-AD model to analyze what happened to the US economy from 1990 to 2000. Please start the analysis with an AS-AD diagram showing a GDP gap.
First, explain what line would shift and in what direction for each of these (a) through (c). Then, use an AS-AD diagram to show each shift and how they accumulate from start to the end. Explain what you think happened to real GDP, unemployment, and Inflation from 1990 to 2000.
(a) According to the Case-Shiller index, from 1990 to 2000, house values rose from 76 to 111.
(b) With the increase in computers, from 1990 to 2000, technology improved dramatically across all industries.
(c) Using the Dow Jones as an indicator, from 1990 to 2000, stock values rose from 2,600 to 10,000.
Question 2: Using an explanation and some numbers, explain (a) why John Maynard Keynes believed that the Government would have to step in when economic times were very bad, and (b) that the government did not have to spend all the money needed to increase GDP from its low level to full employment GDP.
Question 3: In 2019, the economy was near full employment, but the world experienced the COVID 19 global pandemic. Consumers and businesses lost all confidence due to the pandemic and the shelter in place orders. So, the government implemented a $1.9 trillion stimulus package. Please do the following:
(a) Use an AS-AD diagram to show the consequences of the large decrease in consumer and business confidence.
(b) Explain the reason behind the $1.9 trillion stimulus. Explain what the hoped-for effects of that policy on the economy. Please use the AS-AD diagram and words to explain the effects on unemployment, GDP, price level, and the government deficit or surplus. Why do some economists argue that policy might not work?
Question 4: In 2022, the economy was near full employment. Energy prices increased dramatically, House values increased, and the stock market remained at the same level.
(a) Use an AS-AD diagram to show the consequences of the increase in energy prices and house values and the no change in the stock market. Use that same AS-AD diagram to explain the effects on unemployment, GDP, and price level.
(b) Explain how automatic stabilizers would respond in this situation.
(c) Explain what you expect from the appropriate countercyclical fiscal policy and why. Explain the hoped-for effects of that policy on the economy. Explain the effects of that policy on the government deficit or surplus.

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