Consider the aggregate demand (AD), short run aggregate supply (SAS) and long run aggregate supply (LAS) curves shown in the following diagram. P l$) [AS 130 120 SAS 110 100 90 80 _ AD ||l 400 500 600 700 800900 GDP (3} (a) Does this economy have a recessionary gap or an inationary gap? What values (high or low) would you expect for GDP, unemployment and inflation? Briey explain your answer. (5 marks) (b) Identify an appropriate scal policy response that might be implemented, and explain how it might work. (3 marks) (c) State the impact your policy response in Question (b) would have on the budget balance. (2 marks)