Depending on which curve is affected by the government policy, shift either the SRAS curve or the AD curve to reflect the change that would successfully restore potential output. 150 SRAS AD 130 SRAS 110 AD 70 AD LRAS 50 20 22 24 26 28 30 OUTPUT (Trillions of dollars) Suppose that in February the government undertakes the type of policy required to bring the economy back to potential output given in the previous scenario. In April 2020, U.S. imports increase because the United States has eliminated trade restrictions on Japanese goods. Because of the lags associated with implementing fiscal policy, the impact of the government's new policy will likely once the effects of the policy are fully realized. PRICE LEVEL
Depending on which curve is affected by the government policy, shift either the SRAS curve or the AD curve to reflect the change that would successfully restore potential output. 150 SRAS AD 130 SRAS 110 AD 70 AD LRAS 50 20 22 24 26 28 30 OUTPUT (Trillions of dollars) Suppose that in February the government undertakes the type of policy required to bring the economy back to potential output given in the previous scenario. In April 2020, U.S. imports increase because the United States has eliminated trade restrictions on Japanese goods. Because of the lags associated with implementing fiscal policy, the impact of the government's new policy will likely once the effects of the policy are fully realized. PRICE LEVEL
Chapter10: Income And Expenditures Equilibrium
Section: Chapter Questions
Problem 17E
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