(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

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

(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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