Use the Dynamic Aggregate Demand and Aggregate Supply Model and Start

question 46

Essay

Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in a long-run macroeconomic equilibrium.For Year 2,graph aggregate demand,long-run aggregate supply,and short-run aggregate supply such that the condition of the economy will induce the president and the Congress to conduct contractionary fiscal policy.Briefly explain the condition of the economy and what the president and the Congress are attempting to do.

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Definitions:

Credible Policy

A policy considered by participants in the economy to be likely implemented and maintained over time, thereby influencing their economic decisions.

Lower Inflation

A decrease in the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is increasing.

Effectiveness Lag

The delay between the implementation of a policy and the time it takes for the policy's effects to manifest in the economy.

Monetary Policy

Economic strategy chosen by a government's central bank to control the money supply, aiming at achieving macroeconomic goals such as controlling inflation, consumption, growth, and liquidity.