1. Suppose an economy's current situation is illustrated in the accompanying graph. AS Potential Output Price Level (GDP deflator, 1086-100) 160 800 Real GDP ($bilions) (a) Is the economy experiencing a recessionary or inflationary gap? How large is this gap? Explain. What phase of the business cycle is the economy experiencing? (b) How could the government change the level of its purchases or taxes to reduce the gap between the economy's equilibrium real output and its potential level? (c) In referring to the curves in the graph as well as to the multiplier effect, explain how each action you identified in (b) would improve the current situation