(Figure: Fiscal Policy Choices) Use Figure: Fiscal Policy Choices. If the government uses discretionary fiscal policy in the economy depicted in panel (b) when real GDP is Y₁, government spending is likely to be and taxes are likely to be Panel (a) Panel (b) Price level P₂ P₁ reduced; cut O increased; increased reduced; increased increased; cut Y₁ Yp SRAS AD₂ AD₁ Real GDP Price level P₁ P2 Yp Y₁ SRAS AD₁ AD₂ Real GDP
(Figure: Fiscal Policy Choices) Use Figure: Fiscal Policy Choices. If the government uses discretionary fiscal policy in the economy depicted in panel (b) when real GDP is Y₁, government spending is likely to be and taxes are likely to be Panel (a) Panel (b) Price level P₂ P₁ reduced; cut O increased; increased reduced; increased increased; cut Y₁ Yp SRAS AD₂ AD₁ Real GDP Price level P₁ P2 Yp Y₁ SRAS AD₁ AD₂ Real GDP
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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
Transcribed Image Text:(Figure: Fiscal Policy Choices) Use Figure: Fiscal Policy Choices. If the government uses discretionary fiscal policy in the
economy depicted in panel (b) when real GDP is Y₁, government spending is likely to be, and taxes are likely to be
Panel (a)
Panel (b)
Price level
P₂
P1
reduced; cut
increased; increased
reduced; increased
increased; cut
Y₁ Yp
SRAS
AD₂
AD₁
Real GDP
Price level
P₁
P2
Yp Y₁
SRAS
AD₁
AD₂
Real GDP
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