In: Economics
Assume a closed economy. Suppose you have the following information
regarding Country A: Long run real GDP growth rate = 2.5%, natural rate of
unemployment = 5%, long run inflation rate = 2.5%. Currently, real GDP is
growing at 1.4%, unemployment is at 6.4%, and inflation is .7%.
a. Using the IS-LM model and AD-AS, describe fully the current state of the
economy both graphically and in words.
b. What monetary policy measures would you advocate? Why? How would
they work and what would they do in the short run? In the long run?
c. What fiscal policy measures would you advocate? Why? How would
they work and what would they do in the short run? In the long run?