The following events have occurred in UK history: ◆ The world economy goes into an expansion. ◆ UK businesses expect future profits to rise. ◆ The government increases its expenditure on goods and...

The following events have occurred in UK history:

◆ The world economy goes into an expansion.

◆ UK businesses expect future profits to rise.

◆ The government increases its expenditure on goods and services in a time of war or increased international tension.

1 Explain for each event whether it changes short-run aggregate supply, long-run aggregate supply, aggregate demand or some combination of them.

2 Explain the separate effects of each event on UK real GDP and the price level, starting from a position of long-run equilibrium.

3 Explain the combined effects of these events on UK real GDP and the price level, starting from a position of long-run equilibrium.