Draw an AS-AD model of an economy dealing with an inflationary gap. What is one fiscal policy that can be implemented to close this gap? Draw the effect of that policy. Explain how the model returns to long run equilibrium if the government does not intervene.
Draw an AS-AD model of an economy dealing with an inflationary gap. What is one fiscal policy that can be implemented to close this gap? Draw the effect of that policy. Explain how the model returns to long run equilibrium if the government does not intervene.
Chapter11: Fiscal Policy
Section: Chapter Questions
Problem 2SQ
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Draw an AS-AD model of an economy dealing with an inflationary gap. What is one fiscal policy that can be implemented to close this gap? Draw the effect of that policy. Explain how the model returns to long run equilibrium if the government does not intervene.
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