Assume an economy is at a full-employment equilibrium. Then if consumers and businesses owners believe that all the COVID-relief spending by the federal government will result in a rise in prices, would this, ceteris paribus, be reflected as a change in aggregate demand or a change in aggregate supply?

Do all the required readings for Module 2 – 4 and based on the textbook ADAS Model (which is really an application of the demand/supply model of Chapter 3), answer the following.  There is no need to repeat the question as part of your answer – a number followed by an answer will suffice.

1. Assume an economy is at a full-employment equilibrium. Then if consumers and businesses owners believe that all the COVID-relief spending by the federal government will result in a rise in prices, would this, ceteris paribus, be reflected as a change in aggregate demand or a change in aggregate supply? Explain. Be sure to clearly identify a textbook factor of AD or AS that is causing this change.  Would this change be an increase or decrease? Explain. Would this change result in the economy moving to a new short-run, below or above full-employment equilibrium? Explain. What do you predict will happen in the short-run to the equilibrium price level, the level of Real GDP and employment in the economy? Explain using textbook concepts and language.
2. Assume an economy is at a full-employment equilibrium to start. Then if Congress passes and the President signs into law an increase in marginal tax rates, would this, ceteris paribus, be reflected as a change in aggregate demand or a change in aggregate supply? Explain. Be sure to clearly identify a textbook factor of AD or AS that is causing this change. Would this change be an increase or decrease? Explain. Would this change result in the economy moving to a new short-run, below or above full-employment equilibrium? Explain. What do you predict will happen in the short-run to the equilibrium price level, the level of Real GDP and employment in the economy? Explain using textbook concepts and language.
3. If the change in #1 and the change in #2 happened in concert (at exactly the same time), what will be the short-run position of the economy in relationship to its previous full-employment position? Explain. Do you believe the new price level will be higher or lower than the price level before these two events happened together?  Do you believe the level of Real GDP will be higher or lower than the level of Real GDP before these two events happened together?  Do you believe the level of employment in the economy will be higher or lower than the level of employment in the economy before these events happened together?  Explain your answers here in detailed, specific, and clear prose using textbook concepts and language.
4. Draw and submit a fully labeled graph that illustrates the outcome for the economy after both events occur at the same time (that you discussed in #3 above). Provide a legend for your graph as well.

Given your assumption for the new equilibrium for the economy (as discussed in #3 and shown in your graph in #4), what action do you recommend the Federal Reserve (Fed) take? Explain fully referring to the specific type of monetary policy and policy tool the Fed should use. Discuss in detail the “chain of events” by which this monetary policy will affect the economy.  Explain using textbook concepts and language