a) Using the AS-AD model, graphically illustrate and describe in
words what happens to the long-run and short-run equilibrium level
of aggregate output and inflation, when the economy is hit by a
negative demand shock and the fiscal policy responds to the shock.
Make sure you properly label all the axes and curves. Be specific
to describe how the fiscal policy can act in this case.
b) Describe the government spending multiplier and how it would
affect the fiscal policy...