Given an economy where government is deficit spending while operating at full employment.
- Using a correctly labeled graph for real interest rates, explain how the increase in the deficit will affect real interest rates in the short run, ceteris paribus.
- Explain the difference between government deficit and national debt by defining each concept.
- Explain how private investment will be impacted by the government’s deficit spending.
- If the government continues deficit spending, show the impact on a correctly labeled short-run Phillips Curve. Label the initial position A and the new position B.