The economy is in short -run macroeconomic equilibrium at point E1 in the accompanying

Chapter 0, Problem 13

(choose chapter or problem)

The economy is in short -run macroeconomic equilibrium at point E1 in the accompanying diagram. Based on the diagram, answer the following questions. a. Is the economy facing an inflationary or a recessionary gap? b.What policies can the government implement that might bring the economy back to long -run macroeconomic equilibrium? Illustrate with a diagram. c. If the government did not intervene to close this gap, would the economy return to long -run macroeconomic equilibrium? Explain and illustrate with a diagram. d.What are the advantages and disadvantages of the government implementing policies to close the gap?

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