Consider the aggregate demand (AD), short run aggregate supply (SAS) and long run aggregate supply (LAS)...

 

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Consider the aggregate demand (AD), short run aggregate supply (SAS) and long run aggregate supply (LAS) curves shown in the following diagram. P ($), LAS 120- SAS 110- IX 100- 90- 80 130- AD 400 500 600 700 800 900 GDP ($) (a) Does this economy have a recessionary gap or an inflationary gap? What values (high or low) would you expect for GDP, unemployment and inflation? Briefly explain your answer. (5 marks) (b) Identify an appropriate fiscal policy response that might be implemented, and explain how it might work. (3 marks) Consider the aggregate demand (AD), short run aggregate supply (SAS) and long run aggregate supply (LAS) curves shown in the following diagram. P ($), LAS 120- SAS 110- IX 100- 90- 80 130- AD 400 500 600 700 800 900 GDP ($) (a) Does this economy have a recessionary gap or an inflationary gap? What values (high or low) would you expect for GDP, unemployment and inflation? Briefly explain your answer. (5 marks) (b) Identify an appropriate fiscal policy response that might be implemented, and explain how it might work. (3 marks)

Answer rating: 100% (QA)

a Based on the diagram it appears that the economy has an inflationary gap This can be determined by ... View the full answer