For Each of the Following Situations,choose a Fiscal Policy and Explain

question 71

Essay

For each of the following situations,choose a fiscal policy and explain how it could be used to correct the economic problem.
a. Real GDP is below potential GDP following a financial market crisis.
b. A positive demand shock increases aggregate expenditure beyond the full employment level and leads to fears of rising inflation.
c. The economy is in a recession due to rising defaults on mortgages following the bursting of a housing bubble.

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Definitions:

Binding Arbitration

A dispute resolution process where an arbitrator's decision is legally enforceable, requiring parties to abide by the decision without appeal to a court.

Conciliation

A voluntary process where a conciliator helps disputing parties to reach a mutually acceptable agreement.

Increase Wages

The act of raising the amount of money that workers receive as compensation for their labor.

Certified Organization

An entity officially recognized by an authoritative body for meeting certain standards or qualifications.