IMF reduces forecast for U.S. growth The IMF expects U.S. economic growth to slow to 2% in 2012 and 2.25% in 2013. That’s down from its earlier estimates of 2.15% in 2012 and 2.4% in 2013. Christine Lagarde, the IMF’s managing director, said that Congress should “promptly” raise the debt ceiling and adopt strong fiscal policies.

Source: The New York Times, July 3, 2012 Explain the effects of strong fiscal stimulus if it is implemented well.

Use the following information to work Problems 5 to 7.

Figure 1 shows the aggregate demand curve, AD, and the short­run aggregate supply curve, AS, in the economy of Artica. Potential GDP is $300 billion.