Use the accompanying diagram to answer questions a–f.

a. At what short-run equilibrium point might expansionary fiscal policy make sense to help stabilize the economy?

b. What would be the result of appropriate fiscal policy in that case?

c. What would be the long-run result if no fiscal policy action were taken in that case?

d. At what short-run equilibrium point might contractionary fiscal policy make sense to help stabilize the economy?

e. What would be the result of appropriate fiscal policy in that case?

f. What would be the long-run result if no fiscal policy action were taken in that case?

 

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