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PRICE LEVEL 150 130 AS AD 110 90 70 50 20 22 LRAS 24 26 OUTPUT (Trillions of dollars) AD 28 30 × × AS Suppose that in March 2026 the government successfully carries out the type of policy necessary to restore the natural level of output described in the previous question. In June 2026, U.S. imports increase because the United States has eliminated trade restrictions on European goods. Due to the associated with implementing monetary and fiscal policy, the impact of the government's new policy will likely once the effects of the policy are fully realized. PRICE LEVEL Should the government use monetary and fiscal policy in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy, as well as the pros and cons of using these tools to combat economic fluctuations. The following graph plots hypothetical aggregate demand (AD), short-run aggregate supply (AS), and long-run aggregate supply (LRAS) curves for the U.S. economy in March 2026. Suppose the government chooses to intervene in order to return the economy to the natural level of output by using policy. Depending on which curve is affected by the government policy, shift either the AS curve or the AD curve to reflect the change that would successfully restore the natural level of output. 150 AS AD 130 110 90 70 AD AS ?

PRICE LEVEL 150 130 AS AD 110 90 70 50 20 22 LRAS 24 26 OUTPUT (Trillions of dollars) AD 28 30 × × AS Suppose that in March 2026 the government successfully carries out the type of policy necessary to restore the natural level of output described in the previous question. In June 2026, U.S. imports increase because the United States has eliminated trade restrictions on European goods. Due to the associated with implementing monetary and fiscal policy, the impact of the government's new policy will likely once the effects of the policy are fully realized. PRICE LEVEL Should the government use monetary and fiscal policy in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy, as well as the pros and cons of using these tools to combat economic fluctuations. The following graph plots hypothetical aggregate demand (AD), short-run aggregate supply (AS), and long-run aggregate supply (LRAS) curves for the U.S. economy in March 2026. Suppose the government chooses to intervene in order to return the economy to the natural level of output by using policy. Depending on which curve is affected by the government policy, shift either the AS curve or the AD curve to reflect the change that would successfully restore the natural level of output. 150 AS AD 130 110 90 70 AD AS ?

Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter23: Aggregate Demand And Aggregate Supply
Section23.3: The Aggregate Demand Curve
Problem 3QQ
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PRICE LEVEL 150 130 AS AD 110 90 70 50 20 22 LRAS 24 26 OUTPUT (Trillions of dollars) AD 28 30 × × AS Suppose that in March 2026 the government successfully carries out the type of policy necessary to restore the natural level of output described in the previous question. In June 2026, U.S. imports increase because the United States has eliminated trade restrictions on European goods. Due to the associated with implementing monetary and fiscal policy, the impact of the government's new policy will likely once the effects of the policy are fully realized.
Transcribed Image Text:PRICE LEVEL 150 130 AS AD 110 90 70 50 20 22 LRAS 24 26 OUTPUT (Trillions of dollars) AD 28 30 × × AS Suppose that in March 2026 the government successfully carries out the type of policy necessary to restore the natural level of output described in the previous question. In June 2026, U.S. imports increase because the United States has eliminated trade restrictions on European goods. Due to the associated with implementing monetary and fiscal policy, the impact of the government's new policy will likely once the effects of the policy are fully realized.
PRICE LEVEL Should the government use monetary and fiscal policy in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy, as well as the pros and cons of using these tools to combat economic fluctuations. The following graph plots hypothetical aggregate demand (AD), short-run aggregate supply (AS), and long-run aggregate supply (LRAS) curves for the U.S. economy in March 2026. Suppose the government chooses to intervene in order to return the economy to the natural level of output by using policy. Depending on which curve is affected by the government policy, shift either the AS curve or the AD curve to reflect the change that would successfully restore the natural level of output. 150 AS AD 130 110 90 70 AD AS ?
Transcribed Image Text:PRICE LEVEL Should the government use monetary and fiscal policy in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy, as well as the pros and cons of using these tools to combat economic fluctuations. The following graph plots hypothetical aggregate demand (AD), short-run aggregate supply (AS), and long-run aggregate supply (LRAS) curves for the U.S. economy in March 2026. Suppose the government chooses to intervene in order to return the economy to the natural level of output by using policy. Depending on which curve is affected by the government policy, shift either the AS curve or the AD curve to reflect the change that would successfully restore the natural level of output. 150 AS AD 130 110 90 70 AD AS ?
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