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(a) Suppose the following table illustrates the values of real and potential GDP and the price level. Year Potential GDP Real GDP Price level 2020
(a) Suppose the following table illustrates the values of real and potential GDP and the price level. Year Potential GDP Real GDP Price level 2020 $1.5 trillion $1.5 trillion 110 2021 $1.6 trillion $1.65 trillion 120 Use a dynamic aggregate demand and supply model to illustrate: (i) an appropriate fiscal policy to keep real GDP at its potential level in 2021, and explain the effect of the policy on real GDP, the price level and employment. (ii) an unexpected increase in tax on imported intermediate goods in 2021. Discuss its impact on real GDP, the price level and employment
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