A country's government decides to increase its export subsidies to stimulate economic growth. How would this action likely impact the aggregate demand and supply in the short run, and what would be the likely effect on equilibrium output and price levels?

When a government increases export subsidies, it makes it cheaper for companies to sell their products abroad. This encourages businesses to produce more, leading to an increase in aggregate supply because more goods are available in the market. As exports rise, demand for domestic products also increases, raising aggregate demand. In the short run, this combination can lead to higher equilibrium output because more goods are being produced and sold, while prices might also rise due to increased demand. For example, if a country subsidizes its wheat exports, farmers may plant more wheat, resulting in more wheat available both domestically and internationally, which can increase overall economic activity and potentially raise prices as demand grows.