As we have discussed, the production function will determine aggregate supply in

Question

As we have discussed, the production function will determine aggregate supply in the long run. That it , the vertical position of the LRAS and the level of full employment income(Y-bar) represents the maximum possible of output level with full employment of all factor resources operating with, and using, the level of technology available. Now you want to “improve” the aggregate production function to increase the supply capacity of the economy. That it, you desire to move the vertical LRAS to the right on the AS/AD diagram.


Let’s say your economy is at a less than full employment equilibrium WITH AN UPWARD SLOPING SHORT RUN AGGREGATE SUPPLY CURVE(SRAS). Your LRAS suddenly moves to the right. You want to get back to full employment as quickly as possible.(CLOSED ECONOMY)

Defend your use of either monetary policy or fiscal policy to do this. That is, choose monetary or fiscal policy and defend its advantage over its disadvantage

Explanation / Answer

We shall choose fiscal policy to attain equilibrium. the reason is explained when i answered your previous question. which is that it would lower down the curve to induce stability please rate

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