Name: Pd. Name: Pd. Fiscal Policy Practice Draw an economy in an inflationary gap. Include AD, SRAS & LRAS as well as the equilibrium price level and RGDP on your graph. 1. Draw an economy in a recession. Include AD, SRAS & LRAS as well as the equilibrium price level and RGDP on your graph Inflationary Gap Recessionary Gap a. What are the problems in the economy above? Circle all that apply. i. High inflation a. What are the problems in the economy above? Circle all that apply. ii. High unemployment i. High inflation iii. Low RGDP (output) ii. High unemployment . Should the government use expansionary or contractionary policies to fix the recessionary gap above? iii. Low RGDP (output b. Should the government use expansionary or contractionary policies to fix the recessionary gap above? Which policies would help fix the recessionary gap above? Increase or Decrease? | Fiscal Policy Action a. Which policies would help fix the inflationary gap above? Government Spending Budget deficit 1 1 Increase or Decrease? Fiscal Policy Action National debt Government Spending Taxes Taxes 1 1 Budget deficit National debt 2. Graph what would happen in the loanable funds market if the government uses deficit spending to help the economy. Loanable Funds Market a. Explain the crowding out effect.Name Pd Name: Pd Monetary Policy Practice 1. Draw an economy in an inflationary gap. Include AD, SRAS & LRAS as well as the equilibrium price level and RGDP on your graph. 1. Draw an economy in a recession. Include AD, SRAS & LRAS as well as the equilibrium price level and RGDP on Inflationary Gap your graph. Recessionary Gap 1. Which policies would help fix the recessionary gap above? 3. Which policies would help fix the inflationary gap above? Monetary Policy Action Explain the process that leads back to full Increase or Decrease? | Monetary Policy Action Explain the process that leads back to full Increase or Decrease? employment (Logic train.) employment (Logic train.) Reserve requirement Reserve requirement Discount Rate Discount Rate Buy or Sell Buy or S Government Bonds/Securities Government Bonds/Securities Interest on Reserve Balances (IORB) Interest on Reserve Balances 2. If monetary policy is enacted to fix the recession, what is the effect on the money market? (Show the shift.) 4. If monetary policy is enacted to fix the recession, what is the effect on the money market? (Show the shift.) Money Market Money Market a. What is the effect on each of the following? Draw the change in AD on the AD/AS graph above. b. What is the effect on each of the following? Draw the change in AD on the AD/AS graph above. Federal Funds 1 1 Return on Return on 1 1 Federal Funds Rate 1 1 1 1 Rate Interest rates 1 ! (FFR) Investment (ROI) Investment (ROI) (FFR) Interest rates Investment Investment 1 ! RGDP Unemployment 1 ! Price Level Aggregate Demand Price Level RGD 1 ! Aggregate Demand Unemployment