Question: Construct an Aggregate Supply and Aggregate Demand model where AS and AD are in equilibrium at potential GDP at a price level of 1 1
Construct an Aggregate Supply and Aggregate Demand model where AS and AD are in equilibrium at potential GDP at a price level of and Real GDP of $ trillion dollars. Be sure to label all parts of the graph.
a Graph the initial effects of a recession that causes AD to decrease and real GDP to fall $ trillion.
b Explairf what will happen in the long run if nothing is done.
c If the government wanted to intervene in the economy, explain the Fiscal Policy measures that can be used to bring real GDP back to potential.
d Assume the Government multiplier is and Potential GDP has grown to $ trillion dollars. What amount of discretionary fiscal policy is needed to restore real GDP to potential GDP
e Graphically show the government's fiscal policy action and explain the outcome.
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