6. Use an aggregate supply–aggregate demand graph to illustrate the effects on real GDP and the price level of a fiscal stimulus when the economy is in recession.

Use the following information to work Problems 7 and 8.

CBO estimates $1.3 trillion deficit for 2011 The Congressional Budget Office (CBO) predicts that the federal budget deficit hit a near-record $1.3 trillion in the just-completed fiscal year. The 2011 deficit equaled 8.6% of GDP, a slight drop from the 8.9% of GDP in 2010. It’ll take some combination of new revenues and major spending cuts to get the deficit down to about 3% of GDP, the level that many analysts say is sustainable.

Source: USA Today, October 8, 2011