Homework 13 Question 1

The graph to the right shows aggregate?demand, long-run aggregate?supply, and the?short-run aggregate supply curve. The economy is in?short-run equilibrium at E1.

The current situation would be described as a recessionary gap. If the government wished to use discretionary fiscal policy to remedy this?problem, it would need to increase government spending.

?1.) Using either line drawing or?3-point curved line drawing tool?, show how the increase in government spending could be used to return the economy to full employment. Properly label your curve.

?2.) Using the point drawing tool?, identify the new equilibrium. Label the point ?'E2?'.

Carefully follow the instructions?above, and only draw the required objects.