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1 . A change in overall investor confidence will impact the macroeconomy. Here we will model an increase in investor confidence, holding all else constant,

1. A change in overall investor confidence will impact the macroeconomy. Here we will model an increase in investor confidence, holding all else constant, and use the AD/AS model to look at how fiscal policy can try and smooth out the business cycle. Our shock in this question will be investor confidence increases, holding all else constant. Lets start with assuming the US was producing at the full-employment level of output (Yp) with an arbitrary price level (P) before the increase in investor confidence. d. Assume the federal government decides to take action to try and move the economy back to long-run macroeconomic equilibrium. What are the two ways they would do this?

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