Country ABC is experiencing the following situation. Its current aggregate demand is illustrated as AD, producing $12 trillion worth of output. Suppose that the full employment output level/potential output of this country is 11 trillion. Suppose MPC=0.8 and MPI=0.1a) Does this economy have an inflationary output gap or recessionary output gap? How much? Label the output gap clearly on the above diagram.b) If you were the Finance Minister and an ardent believer in Keynesian economics, what would be the fiscal policy tools that you might use to restore full employment output level? (There should be at least 3 tools. Briefly describe how each tool should be implemented)c) Suppose you would like to change the aggregate demand by $2 trillion, for each of the 3 fiscal policies in question c), calculate the size of change in each policy instrument to achieve full employment. Show your steps carefully.

P AS AD AD' 10 11 12 Y(in trillions of $)