Describe the short-run and long-run effects on real output and the price level for each the following events. Assume the economy begins at short-run and long-run equilibrium. Justify your responses with reasoning.
1. Import prices suddenly rise.
2. Government institutes a significant reduction in taxes on production.
3. People hold off on spending because they expect prices to fall.
4. Government increases spending
Please answer the following questions:
1. Explain the two reasons that new growth theory treats investment in capital and investment in technology differently.
2. List five policies that encourage growth.