Course: ECO 110

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Unit 10 Practice Problem »

Unit 10 Practice Problem

Unit 10 Practice Problem

The figure shows an economy operating at a real GDP of Y1 and a price level of P1, at the intersection of AD1 and SRAS1.

Figure 26.3

1. What kind of gap is the economy experiencing?

2. What type of monetary policy (expansionary or contractionary) would be appropriate for closing the gap?

3. If the Fed decided to pursue this policy, what type of open-market operations would it conduct?

4type of fiscal policy could Congress and the President use?