3. Effects of fiscal policy Assume that the economy is currently producing at its potential output. Suppose the governme

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3 Effects Of Fiscal Policy Assume That The Economy Is Currently Producing At Its Potential Output Suppose The Governme 1 (37.55 KiB) Viewed 34 times

3. Effects of fiscal policy Assume that the economy is currently producing at its potential output. Suppose the government decided to implement a tax cut to spur consumer spending, but everything else in the economy remained the same. On the following graph, shift the aggregate demand curve (AD), the short-run aggregate supply curve (SRAS), or both to show the intended short-run effect of this fiscal policy on the economy. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. PRICE LEVEL REAL GOP SRAS AD AD 101 SRAS To the extent that unemployment insurance helps maintain the incomes of laid-off workers, it acts as discretionary fiscal policy necessary in order to bring the economy back to its potential output. which makes