Macroeconomics

Q1 a. Draw a diagram of an economy in recession, resulting in severe unemployment and reduced RGGDP.

(make sure your diagram is well drawn, axes labeled and appropriate arrows shown) (4)

b. In circumstance like this (recession) using Fiscal Policy what would the minister of Finance do to bring the economy back into the long run macroeconomic equilibrium? (2)

c. Assume the economy the economy is overcorrected and heads into a BOOM resulting in high prices (inflation) and over utilization of resources, using Fiscal policy what would the minister of finance do to correct this abnormally i.e. bring the economy back into long run macroeconomic equilibrium) (2)