2. Fiscal policy.

Current macroeconomic situation in county X is shown on graph below. Help this economy move back to full employment at 10 trillion real GDP by answering the following questions.

I.Is country X facing a)Recessionary gap, or b)Inflationarygap?(2 point)

II.Country X should use, a)Expansionary,or b)ContractionaryFiscal Policy.(2 points)

III.How would your chosen fiscal policy be implemented?(3 points)

IV.Will a successful implementation of the policy in part III result in a shift in AD or SRAS, explain why.(4 points)