Assume a closed economy is in a recession.

(e) Illustrate this economy's situation on a short-run and a long-run Phillips curve. Label the short-run equilibrium point R.

(f) What type of fiscal policy could address the economic situation from part (e)?

(g) Assume the federal budget is balanced when the policy from part (f) is implemented. On a fully labeled loanable funds graph, illustrate the impact of this policy on real interest rates.

(h) Will the policy from part (f) cause crowding out? Explain.

(i) Assume that the Federal Reserve takes a policy action to keep interest rates low. Illustrate the impact of this action on a fully labeled money market graph.