Suppose that, because of a decline in investment expenditures in a hypothetical economy in the year 2011, real GDP follows the path ABCDE in the figure below. If a discretionary policy were used that was timely and not too little or too large, show how the path in the figure would change. Use the IA-AD curve analysis to show the consequence of this discretionary fiscal policy.

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The Answer of Suppose that, because of a decline in investment expenditures in a hypothetical economy in the year 2011, real GDP follows the path ABCDE in the figure below. If a discretionary policy were used that was timely and not too little or too large, show how the path in the figure would change. Use the IA-AD curve analysis to show the consequence of this discretionary fiscal policy.

Suppose That, Because of a Decline in Investment Expenditures in a Hypothetical