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9. Suppose the economy had been operating at its potential level of real GDP in the past, but Use an appropriate diagram to illustrate the

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9. Suppose the economy had been operating at its potential level of real GDP in the past, but Use an appropriate diagram to illustrate the impact of stated event on the economy of the net export and consumer spending have suddenly and substantially declined. The decline is fiscal policies you have described. expected to last for a significant period of time. (a) Use an appropriate diagram to illustrate the initial impact of stated event on the economy. d) When compared to the economy's position prior to the use of such policies, what specific impact would the fiscal policies have on the economy's [i] price level, [ii] level of real GDP, [iii] unemployment rate, and [iv] government budget deficit [i.e. increase, b) What impact would the event have on the economy's [i] price level, [ii] level of real GDP, decrease, no effect, or is the outcome indeterminate]? [iii] unemployment rate, and [iv] government budget deficit [i.e. increase, decrease, [i] Price: no effect, indeterminate]? [i] Price: [ii] Real GDP: [ii] Real GDP: [ili] Unemployment: 8 [iii] Unemployment: [iv] Budget Deficit: [iv] Budget Deficit: (c) Describe two different examples of government fiscal policy that could be used to correct the situation outlined at the start of the question. (2 marks) [i] lii

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