Question

In the AS AD model for the very short run (immediate short run AS) expenditure shocks...

  1. In the AS AD model for the very short run (immediate short run AS) expenditure shocks operate as they did in the

multiplier model (with magnified effects on real GDP).   Explain why that analysis isn’t completely realistic for figuring

out how much real GDP would ultimately respond to a trillion dollar increase in government spending at this

particular moment in history (the US in 2019

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Answer #1

The analysis isn't realistic in the very short run period because in long run, the variables keep on changing simultaneously and in response to changes in other variables as all the factors become dependent and coexistant while in short run or in very short run, the economy cannot respond to the changes taking place like a trillion dollar increase in government spending. In long run, it will benefit the economy but in very short run, not much would change as firms and households don't have time to respond to the changes and the benefit doesn't trickle down instantaneously.

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