the diagram, answer the following questions. a) Is the economy facing an inflationary or recessionary gap? b) What policies can the government implement that might bring the economy back to long-run macroeconomic equilibrium? Illustrate with a diagram. c) If the government did not intervene to close this gap, would the economy return to long-run macroeconomic equilibrium? Explain and illustrat

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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The task I am struggling with:

The economy is in short-run macroeconomic equilibrium at point E1 in the accompanying diagram (see the picture). Based on the diagram, answer the following questions.

a) Is the economy facing an inflationary or recessionary gap?

b) What policies can the government implement that might bring the economy back to long-run macroeconomic equilibrium? Illustrate with a diagram.

c) If the government did not intervene to close this gap, would the economy return to long-run macroeconomic equilibrium? Explain and illustrate with a diagram.

Thank you very much for your help.

LRAS
Aggregate
price
„SRAS1
level
E1
P1
`AD1
Y1 Yp
Real GDP
Transcribed Image Text:LRAS Aggregate price „SRAS1 level E1 P1 `AD1 Y1 Yp Real GDP
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