In connection with the corona crisis, many countries have announced fiscal stimulus to support

a recovery of the economy to its natural (medium-term) equilibrium. Use the AS-AD model for

to answer the following questions:

a) What is happening in the economy in the short and medium term provided the extent of the stimulus

are just as large as needed to bring the economy to its natural equilibrium.

b) In the United States, the new administration has announced a particularly large recovery package. Suppose it is

greater than what is needed to bring the economy to its natural equilibrium. Explain what

then happens in the short and medium term