After you have studied Reading Between the Lines on pp. 664–665 answer the following questions.

a. What are the main features of the U.S. economy in the second quarter of 2010?

b. Did the United States have a recessionary gap or an inflationary gap in 2010? How do you know?

c. Use the AS-AD model to show the changes in aggregate demand and aggregate supply that occurred in 2009 and 2010 that brought the economy to its situation in mid-2010.

d. Use the AS-AD model to show the changes in aggregate demand and aggregate supply that would occur if monetary policy cut the interest rate and increased the quantity of money by enough to restore full employment.

e. Use the AS-AD model to show the changes in aggregate demand and aggregate supply that would occur if the federal government increased its expenditure on goods and services or cut taxes further by enough to restore full employment.

f. Use the AS-AD model to show the changes in aggregate demand and aggregate supply that would occur if monetary and fiscal policy stimulus turned out to be too much and took the economy into an inflationary gap. Show the short-run and the long-run effects.