2. The graph below shows the AD-AS model in short-run equilibrium at price level Po and level of real GDP at Yo. Label the following: AD, SRAS, LRAS, Po and Yo. P Y A. Is this SR equilibrium a recessionary gap or an inflationary gap? Why is the undesirable? B. Assume Congress and the President decide to act. How would you suggest they alter each of the following (1,↓, or no change)? - Taxes - Transfer Payments - Government Spending C. Show the effects of these changes in the space above. Assume this intervention brings the economy back to potential GDP. D. As the economy moves from Yo to Yp, what happens to the following (1,↓, or no change)? - Real GDP - the unemployment rate - The price level - the rate of inflation

Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter22: Aggregate Demand And Aggregate Supply
Section: Chapter Questions
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2. The graph below shows the AD-AS model in short-run equilibrium at price level Po and level of real GDP at Yo. Label
the following: AD, SRAS, LRAS, Po and Yo.
P
Y
A. Is this SR equilibrium a recessionary gap or an inflationary gap?
Why is the undesirable?
B. Assume Congress and the President decide to act. How would you
suggest they alter each of the following (1,↓↓, or no change)?
- Taxes
- Transfer Payments
-Government Spending
C. Show the effects of these changes in the space above. Assume this intervention brings the economy back to potential
GDP.
D. As the economy moves from Yo to Yp, what happens to the following (1,↓, or no change)?
- Real GDP
- the unemployment rate
- The price level
- the rate of inflation
Transcribed Image Text:2. The graph below shows the AD-AS model in short-run equilibrium at price level Po and level of real GDP at Yo. Label the following: AD, SRAS, LRAS, Po and Yo. P Y A. Is this SR equilibrium a recessionary gap or an inflationary gap? Why is the undesirable? B. Assume Congress and the President decide to act. How would you suggest they alter each of the following (1,↓↓, or no change)? - Taxes - Transfer Payments -Government Spending C. Show the effects of these changes in the space above. Assume this intervention brings the economy back to potential GDP. D. As the economy moves from Yo to Yp, what happens to the following (1,↓, or no change)? - Real GDP - the unemployment rate - The price level - the rate of inflation
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