Question

4. State all the appropriate fiscal and monetary policies when the aggregate demand curve is in range A. Do the same for range C. Explain

There was no diagram accompanying it. I assume this is a conceptual diagram type deal, but I don't understand it which is why I posted it

Answer 1

These range have been used to denote the condition of economy. Under the range A, economy operates  below the full employment. Or demand is deficient, Hence it is not sufficient to increase output and employment. Hence, Fiscal and monetary policies must be used to speed up aggregate demand in economy.

Government must follow the expansionary fiscal and monetary policies to attain full employment. If government uses expansionary fiscal and monetary policies, there will be rise in AD and it will shift to right thereby pulling up output and employments. Government must increase expenditure and reduces taxes. Further, from monetary policy side, open market purchase of securities must be resorted and further reserve requirements should be reduced.

On other side, in C range, economy is at full employment level and government should switch from expansionary actions to contractionary actions. Expenditure should be reduced and tax must be increased. Further, reserve requirement must be increased. These measures would moderate aggregate demand. Expansionary policies in this range might lead to rise in inflationary pressures.