Suppose that Techoland and Cornsylvania decide to engage in fiscal federalism and adopt a common fiscal budget.

a. Show, again using aggregate demand/aggregate supply diagrams, how fiscal policy can be used to alleviate the short-run fluctuations generated by the asymmetric demand shock.

b. Given the typical lags in the implementation of fiscal policy, would you advise the use of federal fiscal policy to alleviate short-run macroeconomic fluctuations?

(Hint: distinguish between automatic stabilizers and discretionary fiscal policy.)