Answer to Question #119015 in Macroeconomics for Aynul

Question #119015

Suppose the economy is stuck in a Recessionary Gap. Now the government wants to deploy expansionary Fiscal Policy tools to move the economy back to long-run equilibrium. Explain the following scenarios with appropriate graphs: a. There are no lags in the implementation process. b. There are lags in the implementation process.

Expert's answer

a) When people got money they started to spend money right away. Increase demand and amount of money as a result supply and investments increase.

b) People afraid to spend money immediately. At first, saving grow then demand increase with prices. After for all of that increase supply.

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