The graph above shows the AD/LRAS/SRAS functions for a country.
In the short run wages and prices are sticky due to contracts, but they fully adjust to market conditions in the long run.
Marginal propensity to consume is MPC = 0.75.
Okun’s coefficient equals α = 2.
Currently all the markets are in equilibrium.
There is no foreign trade and so net exports equal zero.
Currently the government purchases equal G = 1,000 units.
All the questions refer independently to this baseline scenario.
The short-run effects of a policy or an event on P and Y are defined as the values of these variables after the AD function shifts but before the SRAS function begins shifting.
The government conducts a balanced-budget increase in its purchase of goods and services equal to 300 units.
As the result of this policy the cyclical unemployment in the short run will equal __________percent. (Short run meaning after the AD shifts but before the SRAS starts shifting)