Using the aggregate demand–aggregate supply model, illustrate (draw a graph) a market economy experiencing a recessionary...

Using the aggregate demand–aggregate supply model, illustrate (draw a graph) a market economy experiencing a recessionary gap (include aggregate demand, short-run and long-run aggregate supply curves). Label all parts of the graph. In your own words, explain how government can close the recessionary gap? What would be the effect on price and real GDP?

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Expert Solution

and hence price will increase as described by the vertical axis and real GDP will increase.

Rahul Sunny answered 9 months ago

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