With reference to a demand and supply diagram for labor, describe the advantages and disadvantages of raising the federal minimum wage. Consider the following demand schedule for widgets. Widgets are divisible, so the demand curve is a straight line. Consider an economy in which the price level is 1.0, the economy is operating at the full employment level of output of 4000 per year in real terms, and the money supply is 500. Describe what would happen to the price level, the level of real output, and velocity of circulation, if the money supply were to increase to 550. 4.
Banks hold no excess reserves and the public holds no currency.
Describe fiscal policy tools that act as automatic stabilizers. That is, describe government spending and taxation policies that automatically dampen the business cycle. Be sure to explain your diagram, including any shifts in the curves you draw. The lags that impede discretionary fiscal policy fall into three categories. Describe these categories.