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The following table shows the aggregate demand and aggregate supply schedules for the economy of Port au Prince. Aggregate Quantity Demanded Price Index Aggregate Quantity

The following table shows the aggregate demand and aggregate supply schedules for the economy of Port au Prince.

Aggregate Quantity Demanded Price Index Aggregate Quantity Supplied
$125 65 $95
115 70 100
105 75 105
95 80 110
85 85 115
75 90 120

a) If potential GDP is 65, is this economy in a long run equilibrium? How do you know? (2 marks) b) If the price level were 80, would there be a surplus or a shortage? How much? (2 marks)

c) Does there exist a recessionary gap or an inflationary gap? How do you know? (2 marks)

d) If the government were to use fiscal policy to stabilize this economy, what kind would it use? In your answer, you are required to specifically address TWO TOOLS OF FISCAL POLICY AND HOW THEY WOULD BE USED TO STABILIZE THE ECONOMY. (4 marks)

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