Assume that it is the election year in country Macrostan, which is a closed economy. Macrostan government increased its expenditure to guarantee re-election. Explain the eects of expansionary scal policy. In your answer you should clearly explain the eects of this policy on output, interest rates, unemployment, and price level. Make sure that you start from rst principles (i.e. the aggregate expenditure model) when you are explaining the eects. How does Macrostan go to its long run equilibrium?
