Using the aggregate demand-aggregate supply model

Reference no: EM13695454

Using the aggregate demand-aggregate supply model illustrate an economy with expansionary gap. If the government is to close the gap by changing government purchases should it increase or decrease those purchases? In the long-run what happen to the level of real GDP as a result of government intervention? What happens to the price level? Illustrate this on AD-AS diagram, assuming that the government changes its purchases by exactly the amount necessary to close the gap.

Reference no: EM13695454

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