Use the following to answer questions:
-(Figure: Short- and Long-Run Equilibrium) Refer to Figure: Short- and Long-Run Equilibrium. If the economy is at equilibrium at E₁, the government should use _____ fiscal policy to shift the aggregate demand curve to the _____.

Question

Use the following to answer questions:

-(Figure: Short- and Long-Run Equilibrium) Refer to Figure: Short- and Long-Run Equilibrium. If the economy is at equilibrium at E₁, the government should use _____ fiscal policy to shift the aggregate demand curve to the _____.

Quizplus · Accepted Answer

Since the economy is at equilibrium below potential GDP, the government should use expansionary fiscal policy to shift the aggregate demand curve to the right, increasing GDP and closing the output gap.

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