2.

a. Explain the difference between discretionary and non-discretionary fiscal policy and the difference

between expansionary and contractionary fiscal policy. Give examples of each.

b. Use aggregate demand, aggregate supply, and LRAS to show both a recessionary gap and an

inflationary gap. Draw and explain how fiscal policy can be used to close each gap.

c. Draw another set of graphs showing recessionary gap and an inflationary gap. Explain what happens

to both graphs in the long-run without government intervention