Use the following to answer questions .
Exhibit: Fiscal Policy 1
-(Exhibit: Fiscal Policy 1) . Assume that the economy is initially at Y₁. A nonintervention policy would result in the restoration of potential output by allowing the

Question

Use the following to answer questions .
Exhibit: Fiscal Policy 1

-(Exhibit: Fiscal Policy 1) . Assume that the economy is initially at Y₁. A nonintervention policy would result in the restoration of potential output by allowing the

Quizplus · Accepted Answer

A nonintervention policy would allow the market forces to restore potential output, which would shift the short-run aggregate supply curve to the right. This would result in an increase in real GDP and a decrease in the price level, leading to the economy moving towards the long-run equilibrium.

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