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a. On Graph 1 below, illustrate how a fiscal policy could be used to close a recessionary gap. You need to show the full employment
a. On Graph 1 below, illustrate how a fiscal policy could be used to close a recessionary gap. You need to show the full employment level of real GDP (YF) and clearly label the new equilibrium as (PLI, Y1). (2 marks) Graph 1: Recessionary Gap and Fiscal Policy Price level 4 AS PLO AD Yo Real GDP . According to your answer in Graph 1, what kind of fiscal policy has been implemented? Explain the transmission channels of the policy. (3 marks) Page 10 of 17
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