One could easily find either of the following explanations in the press for strong U.S. economic performance during the 1990s:
1. Low unemployment and a sizzling stock market have made American consumers feel wealthy and secure. Therefore, they have raised their spending to unprecedented levels, which has driven real growth rates to new heights.
2. The revolution in computing and telecommunication technologies has changed the way that things are made in this country. The result is the fastest growth of labor productivity since the 1960s.
a. Graph each situation using the AD/AS model, including the AD, SRAS and LRAS curves. Label equilibrium. Assume that each situation began in a recessionary gap.
b. Which one of these interpretations is most obviously consistent with Keynesian macroeconomic theory? Briefly explain your answer.