Question

1. Suppose the economy is operating in a recessionary gap. If policymakers wished to use fiscal policy to move output to its long-run natural rate, they should attempt to

a. shift aggregate demand to the right
b. shift aggregate demand to the left
c. shift short-run aggregate supply to the right
d. shift short-run aggregate supply to the left

2. Assume that the US economy is producing at its potential GDP when an economic boom (short run event) in both Japan and Europe. This boom results in massive increase in orders for exported goods from the United States.

a. This economic boom in Japan and Europe would cause which curve to shift for AS-AD for the US Economy?


b. Which component of the Expenditure Equation for the US is affected by this boom?

c. What type of macroeconomic equilibrium condition is created by this short run event? (Inflationary gap, recessionary gap or stagflation)

d. Explain the type of fiscal policy that US government would use to bring the economy back to full employment. What curve in the AS-AD would this fiscal policy shift?

e. Explain the type of monetary policy that The Fed would use the bring the economy back to full employment. Hint: ( focus on the Federal Funds Rate and IROB Rate) What curve in the AS-AD would this fiscal policy shift?

Answer 1

1. aggregate demand shifts right or aggregate supply shifts left

2. im not too sure about the second one but i would say A sorry about that

Step-by-step explanation: