PRICE LEVEL1501301109070502022LRAS2426OUTPUT (Trillions of dollars)ASAD2830ADASSuppose that in January 2026 the government successfully carries out the type of policy necessary to restore the natural level of output described inthe previous question. In March 2026, U.S. exports increase because India eliminates all trade restrictions on U.S. goods. Due tothelikelyassociated with implementing monetary and fiscal policy, the impact of the government's new policy willonce the effects of the policy are fully realized. 7. Use of discretionary policy to stabilize the economyShould the government use monetary and fiscal policy in an effort to stabilize the economy? The following questions address the issue of howmonetary and fiscal policies affect the economy, as well as the pros and cons of using these tools to combat economic fluctuations.The following graph plots hypothetical aggregate demand (AD), short-run aggregate supply (AS), and long-run aggregate supply (LRAS) curves forthe U.S. economy in January 2026.Suppose the government chooses to intervene in order to return the economy to the natural level of output by usingDepending on which curve is affected by the government policy, shift either the AS curve or the AD curve to reflect the change that would successfullyrestore the natural level of output.PRICE LEVEL15013011090ASADDASpolicy.?

20 22 LRAS 24 26 OUTPUT (Trillions of dollars) AS AD 28 30 AD þ AS that in January 2026 the government successfully carries out the type of policy necessary to restore the natural level of output described in ious question. In March 2026, U.S. exports increase because India eliminates all trade restrictions on U.S. goods. Due to associated with implementing monetary and fiscal policy, the impact of the government's new policy will

20 22 LRAS 24 26 OUTPUT (Trillions of dollars) AS AD 28 30 AD þ AS that in January 2026 the government successfully carries out the type of policy necessary to restore the natural level of output described in ious question. In March 2026, U.S. exports increase because India eliminates all trade restrictions on U.S. goods. Due to associated with implementing monetary and fiscal policy, the impact of the government's new policy will

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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