The accompanying diagram shows the current

macroeconomic situation for the economy of

Albernia. You have been hired as an economic

consultant to help the economy move to

potential output, YP.

a) Is Albernia facing a recessionary or

inflationary gap?

b) Which type of fiscal

policy?expansionary or

contractionary?would move the

economy of Albernia to potential output, YP? What are some examples of such policies?

c) Illustrate the macroeconomic situation in Albernia with a diagram after the successful fiscal policy has been implemented

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