Figure 18-5

-Refer to Figure 18-5.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,Congress and the president would most likely pursue

Question

Figure 18-5
 
-Refer to Figure 18-5.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,Congress and the president would most likely pursue

Quizplus · Accepted Answer

The economy is currently at point A, which implies a lower level of output than the potential output of the economy. Given that the economy is expected to move to point B in year 2, there is a positive output gap, which suggests that expansionary policy would be appropriate to close the gap and bring the economy closer to potential output. Fiscal policy involves changes in government spending and taxation, which can directly influence aggregate demand. Therefore, expansionary fiscal policy would likely be pursued to increase aggregate demand and shift the AD curve to the right, leading to an increase in output and a decrease in unemployment.

Figure 18-5 -Refer to Figure 18-5.In the Dynamic Model of AD-AS in Model