assign#6 - Assignment #6 Ecn 203 Xiangying Wu 2:15-3:35 1....

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Assignment #6 Ecn 203 Xiangying Wu 2:15-3:35 1. Standard, fluctuations-based economic policy plays an important role in AD- AS model, as it gets Y * closer to a given Y F . There are two strategies for economic policy, one Expansionary Policy, the other Contractionary Policy. Expansionary Policy is designed to address a sluggish economy (Y * < Y F ). It seeks to increase spending on goods or services so that the Aggregate Demand increases. As the graph shown above, there is a rightward shift of AD curve. In this way, the  equilibrium   price   level   increases   from   P *   to   P *’ ,   and   the   equilibrium  real  GDP  increases from Y* to Y *’ , so that the equilibrium real GDP is closer to Y F . Contractionary Policy is designed to address a economy with accelerating inflation (Y * >Y F ). It seeks to decrease spending on goods or services so that the Aggregate Demand decreases. As the graph shown above, there is a leftward shift of AD curve.
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assign#6 - Assignment #6 Ecn 203 Xiangying Wu 2:15-3:35 1....

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