Consider the following two headlines appearing in the same day: \"Federal govern

Question

Consider the following two headlines appearing in the same day: "Federal government announces major new infrastructure investments" and "New technology drives down transport costs." Choose the statement below that best describes the likely macroeconomic effects. The AS curve shifts to the left; the price level rises and real GDP falls. The AD curve shifts to the left; the price level falls and real GDP falls. The AD curve shifts to the right; the price level rises and real GDP rises. The AS curve shifts to the right; the price level falls and real GDP rises. The AD and AS curves both shift to the right; the effect on the price level is indeterminate and real GDP rises. Consider an economy with an inflationary gap. The advantage of using a contractionary fiscal policy

Explanation / Answer

For First One E is Correct because of the fact that investments in infrastructure driving down the technology cost which will create overall efficiency and hence both AD and AS will shift resulting in new equillibrium level where prices being indeterminant factor.

For Second One B is Correct as it will close the Output Gap which might results into Inflationary pressure on Prices.

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