Essay
Assume that the economy is in the state described by the following table.
Draw a dynamic aggregate demand and aggregate supply diagram to illustrate the state of the economy in year 1 and year 2, assuming that no policy is pursued. Then illustrate the appropriate fiscal policy to use in this situation. Assume that the policy results in the economy producing at potential GDP. Provide an explanation.
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The economy begins in equilibrium at poi...View Answer
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