Chapter 26 Macro Worksheet.docx - Chapter 26 Worksheet Name_Yixuan Wang Section 1 An economy is currently at point A in the graph below a Is the economy

Chapter 26 Macro Worksheet.docx - Chapter 26 Worksheet...

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Chapter 26 Worksheet Name:___Yixuan Wang___ Section:________________ 1. An economy is currently at point A in the graph below. a. Is the economy in a recessionary gap or an inflationary gap? recessionary gap b. How would this economy return to equilibrium if fiscal or monetary policy alone were used? On the graph, label the new equilibrium point that would result from this policy as point B. (Do not draw any new curves.) The government will have to use monetary or fiscal policy to shift the AD curve to the right enough so that the AD, SAS and LAS curves all intersect at the same point. The price level and output both rise. c. How would this economy return to equilibrium if no policy action were taken? On the graph, label the new equilibrium point that would result from this policy as point C. (Do not draw any new curves.) Because there is an excess supply of the factors of the factors of production, input prices decline, shifting the SAS curve down sufficiently. 2. Describe the short-run and long-run effects
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