Final answer:
The infrastructure plan would have effects on expansionary fiscal policy, supply-side economics, shifts in aggregate supply and demand, and changes in monetary policy.
Step-by-step explanation:
In the AD/AS model, the infrastructure plan would have several effects. First, it would lead to an expansionary fiscal policy.
This means that government spending (G) would increase, which would shift the aggregate demand (AD) curve to the right. This would increase total spending and lead to higher real GDP and upward pressure on the price level.
Second, the infrastructure plan could have supply-side economic impacts. By investing in infrastructure, it could improve productivity and efficiency in the economy.
This would shift the aggregate supply (AS) curve to the right, leading to higher real GDP and lower price levels.
Third, the infrastructure plan could also lead to changes in aggregate supply and demand. If the plan increases consumer and business confidence, it could lead to higher consumption spending (C) and investment spending (I), shifting the AD curve to the right.
Additionally, if the plan includes tax cuts or incentives for businesses, it could further stimulate spending and shift the AD curve to the right.
Lastly, the infrastructure plan could have implications for monetary policy. If the plan leads to higher inflationary pressures, the central bank may respond by tightening monetary policy to control inflation.
Conversely, if the plan leads to lower inflationary pressures, the central bank may loosen monetary policy to stimulate economic growth.