Suppose the Canadian economy is at its long-run equilibrium

Suppose the Canadian economy is at its long-run equilibrium

Subject: Economics    / Accounting
Question

Suppose the Canadian economy is at its long-run equilibrium with national income equal to the potential national income. Now suppose there is an increase in government purchases (G).

Use diagrams to show the effect of an increase in government purchases (G). Are equilibrium price and national income higher or lower at the new short-run equilibrium?

Explain the automatic process by which the economy will adjust towards the potential national income in the long-run.