If the short-run aggregate supply curve intersects the aggregate demand curve to the left of the long-run aggregate supply curve, then the economy has _____ gap, and the government can close the gap using _____ fiscal policy.

Question

Quizplus · Accepted Answer

When the short-run aggregate supply curve intersects the aggregate demand curve to the left of the long-run aggregate supply curve, it indicates that the economy is producing less than its potential output, leading to a recessionary gap. The government can close this gap by implementing expansionary fiscal policy, which involves increasing government spending, decreasing taxes, or both to stimulate economic activity.

If the Short-Run Aggregate Supply Curve Intersects the Aggregate Demand