2. contractionary or expansionary 3. tax increase or tax cut 4. inflation, polit

Question

2. contractionary or expansionary

3. tax increase or tax cut

4. inflation, political influence or lags

5.leave the economy unchanged, fall short of potential GDP, push the economy beyond potential GDP, or increase the long run capacity to produce goods and services

7. Use of discretionary policy to stabilize the economy The following graph shows a hypothetical aggregate demand curve (AD), short-run aggregate supply curve (AS), and long-run aggregate supply curve for the economy in May 2020. According to the graph, this economy is in To bring the economy back to its potential GDP, the government could use fiscal policy such as Shift the appropriate curve on the following graph to illustrate the effects of the policy you previously chose. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. 150 Potential GDP 140 AS AD 130 120 110 AS 100 90 80 70 60 50 20 21 22 23 24 25 26 27 28 29 30 REAL GDP (Trillions of dollars)

Explanation / Answer

1. Recessionary gap

2. expansionary

3. tax cut.

4. lags

5. push the economy beyond potential GDP

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