Question: Using aggregate demand, short-run aggregate supply, and long-run aggregate supply curves, explain the process by which each of the following government policies will move the economy from one long-run macroeconomic equilibrium to another. Illustrate with diagrams. In each case, what are the short-run and long-run effects on the aggregate price level and aggregate output?
a. There is an increase in taxes on households.
b. There is an increase in the quantity of money.
c. There is an increase in government spending.