## Analysis of the AD-AS Diagram for Canada### Graph Description:The graph presented is an Aggregate Demand-Aggregate Supply (AD-AS) diagram for Canada, displaying the relationship between the price level and real GDP.- **AD (Aggregate Demand) Curve**: This is the downward-sloping blue line. It indicates that as the price level decreases, the quantity of real GDP demanded increases.- **SRAS (Short-Run Aggregate Supply) Curve**: The upward-sloping red line represents the short-run aggregate supply, showing that as the price level increases, the quantity of real GDP supplied also increases.- **LRAS (Long-Run Aggregate Supply) Curve**: The vertical black line, labeled LRAS, symbolizes the long-run supply in the economy. It is vertical because, in the long run, the economy's output is determined by factors of production and is not influenced by the price level.### Fiscal Policy Question:The diagram poses a question regarding the appropriate fiscal policy to be adopted by the Canadian government to restore long-run equilibrium.#### Fiscal Policy Options:a. There is no need for either contractionary or expansionary fiscal policy.b. The government should implement expansionary fiscal policy.c. The government should implement contractionary fiscal policy.This instructional content engages students in understanding macroeconomic policy decisions based on the equilibrium portrayed in the AD-AS model.

The point at which aggregate demand and aggregate supply intersects is the point at which the actual GDP and price levels are determined, however the potential GDP may be above or below the actual GDP this causes government to adopt expansionary or contractionary fiscal policy.In the diagram it is obvious that the potential GDP is higher than the actual GDP, the government of Canada should adopt expansionary fiscal policy to correct this short fall, expansionary policy will lead to shift in the aggregate demand. Thus option b is correct

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2. The graph below shows the AD-AS diagram for Canada. 1200+ 1100+ 1000 AD 900 800 - 700+ 600 + 50KRAS 400 300- 200 - 100+ TRAS 100 200 30Q 400500 600 700 800 9001000I 100 20 Real GDP What type of fiscal policy should the government of Canada be implementing to economy to the long-run equilibrium (select one)? a. There is no need for either contractionary or expansionary fiscal policy. b. The government should implement expansionary fiscal policy. c. The government should implement contractionary fiscal policy. Price Level

2. The graph below shows the AD-AS diagram for Canada. 1200+ 1100+ 1000 AD 900 800 - 700+ 600 + 50KRAS 400 300- 200 - 100+ TRAS 100 200 30Q 400500 600 700 800 9001000I 100 20 Real GDP What type of fiscal policy should the government of Canada be implementing to economy to the long-run equilibrium (select one)? a. There is no need for either contractionary or expansionary fiscal policy. b. The government should implement expansionary fiscal policy. c. The government should implement contractionary fiscal policy. Price Level

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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