Refer to the above graph. The economy is initially at output level Y₁. If discretionary fiscal policy is used to eliminate the output gap, policy actions will A B C D shift the short-run aggregate supply curve to the left until long-run equilibrium is restored at a price level P₂ an output level Yp shift the aggregate demand curve to the left until long-run equilibrium is restored at a price level P, and output level Yp shift the aggregate demand curve to the right until long-run equilibrium is restored at a price level P, and output level Yp shift the aggregate demand curve and the short-run aggregate supply curve to the right until long-run equilibrium is restored at a price level P, and output level Yp.

Refer to the above graph. The economy is initially at output level Y₁. If discretionary fiscal policy is used to eliminate the output gap, policy actions will A B C D shift the short-run aggregate supply curve to the left until long-run equilibrium is restored at a price level P₂ an output level Yp shift the aggregate demand curve to the left until long-run equilibrium is restored at a price level P, and output level Yp shift the aggregate demand curve to the right until long-run equilibrium is restored at a price level P, and output level Yp shift the aggregate demand curve and the short-run aggregate supply curve to the right until long-run equilibrium is restored at a price level P, and output level Yp.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 5P

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