land's economy has an inflationary gap of $40 billion, and the marginal propensity to consume is 0.9. The expected inflation rate is 5%, and the natural rate of unemployment is 2%. Draw a correctly labeled graph of AD/AS showing the condition of the economy. The government of Nelsonland is considering using fiscal policy to address the inflationary gap of $40 billion. Calculate the minimum change in government spending required to decrease aggregate demand by the amount of the inflationary gap. Show the change on the AD/AS graph and your calculations work. Explain what happens to the economy after the shift Assume that policy makers take no policy action and that prices and wages are completely flexible. Explain what will happen to each of the following Short run aggregate supply Price level unemployment

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