2 (a) Which one of the following diagrams illustrates the impact of an increase in net exports along a Keynesian long-run aggregate supply curve? A B C D (b) Using the classical long-run aggregate supply curve, explain what will happen in the long run to real output if aggregate demand increases - Edexcel - A-Level Economics A - Question 2 - 2021 - Paper 2

In the long run, according to classical economists, there would be no change in real output, as the economy will remain at full employment. This is illustrated by a vertical long-run aggregate supply curve, indicating that real output is determined by factors such as technology and resources, rather than demand levels. An increase in aggregate demand might temporarily raise output, but eventually, the economy will return to its full employment level.

Annual fiscal deficits can lead to an increase in the national debt. When the government spends more than it receives in revenue, it borrows to cover the deficit. This borrowing accumulates over time, resulting in a higher national debt. The likely impacts include a negative wealth effect as the government services its debt, which may lead to reduced consumption and investment, potentially hindering economic growth.