1) An impending war leads the government to purchase war supplies. What effect does this have on the aggregate?

1) An impending war leads the government to purchase war supplies. What effect does this have on the aggregate supply or aggregate demand curves?|||Is it too late to help with your homework?





Good.





First it drives up the demand curve. After all, you can't fight a war without plenty of pencils. That means that there may be a temporary increase in the cost and decrease in the available supply of unsold pencils.





Then, the pencil companies may decide to manufacture more pencils to fill the void and take advantage of the increase in price of pencils. This will increase the supply of pencils until they reach a state of equilibrium at a higher price and demand point.





This of course may lead to inflation.





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Love,


The Homework Fairy.