Question

2. Draw and properly label the AD-AS graph(s) to show recessionary and inflationary

    gaps (6%). Then, discuss Keynesian perspective to closing recessionary and

    inflationary gaps.

3. Draw and properly label AD-AS graph(s) to show recessionary and inflationary gaps

    (6%). Then, discuss neoclassical perspective to closing recessionary and

    inflationary gaps.

Answer 1

2.

Price LRAS Price LRAS 乐乐 AD QQ' Real GDP Real GDP Q Figure - B Figure - A

In the above diagram, Figure A represents recessionary gap where actual output Q is less than potential output Q'. In contrast to it, Figure B, shows inflationary gap, where actual output Q is greater than potential output Q'.

To close the recessionary gap, the Keynesian approach will be to increase government spending or decrease taxes so that AD is stimulated and AD curve shifts to the right to achieve potential output level. In contrast to it, To close the Inflationary gap, it is decrease in government spending or increase in the tax rate that will help Ad to decrease and shift to the left. It will help achieve potential output again. These changes are shown as follows.

Price LRAS Price LRAS AD1 Di 4D Q Q' Real GDP Q Real GDP Figure - A Figure - B

Pl. repost other unanswered questions for their proper answers!