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Figure 15-4 A graph shows Real GDP (Q) on the horizontal axis and Price Level (P) on the vertical axis. A downward-sloping aggregate demand curve,
Figure 15-4 A graph shows Real GDP (Q) on the horizontal axis and Price Level (P) on the vertical axis. A downward-sloping aggregate demand curve, AD, is plotted on the graph. An upward-sloping short-run aggregate supply curve, SRAS, is also plotted on the graph, as is a vertical long-run aggregate supply curve, LRAS, which is placed at Q sub N. The LRAS curve lies to the left of the intersection of SRAS and AD. The value of Q at the intersection of SRAS and AD is labeled Q sub 1. Refer to Figure 15-4. Assume that the economy starts out in short-run equilibrium. An economist who believes that the economy is not self-regulating would assert that the government should use _________________ fiscal policy to close the existing ___________________ gap. a. expansionary; recessionary b. contractionary; inflationary c. expansionary; inflationary d. contractionary; recessionary
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