Answer to Question #89468 in Macroeconomics for Sofia Bale

Question

show graphically, methods by which the economy might be moving towards full employment

Answer 1

The economy is not in full employment, if there is a recessional (real GDP < potential GDP) or inflationary gap (real GDP > potential GDP). In case of recessional gap the increase in aggregate demand through increase in government spending or decrease in taxes can close the gap. In case of recessional gap the increase in aggregate demand using expansionary monetary or fiscal policy can close the gap. In case of inflationary gap the decrease in aggregate demand using contractionary monetary or fiscal policy can close the gap.