Lags, inflation, or consumer preferences leave the U.S. economy unchanged, leave
ID: 1225471 • Letter: L
Question
Lags, inflation, or consumer preferences
leave the U.S. economy unchanged, leave the economy above potential output, push the economy below potential output, or decrease the long-run production capacity
The following graph shows a hypothetical aggregate demand curve (AD), short-run aggregate supply curve (SRAS), and long-run aggregate supply curve (LRAS) for the U.S. economy in February 2020. Suppose the government decides to intervene to bring the economy back to its potential output. In this case, the government would engage in an expansionary policy. Depending on which curve is affected by the government policy, shift either the SRAS curve or the AD curve to reflect the change that would successfully restore potential output. 150 SRA AD 130 110 SRAS 90 70 LRAS 50 20 24 26 28 30 OUTPUT (Trillions of dollars)Explanation / Answer
Inflation
When you go for expansionary fiscal policy inflation will be by-product
leave the economy above potential output
Above output potential will also be result of inflation when economy seems good people will just invest and capacity will improve.
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