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Use the following to answer questions 6-7: Figure: Determining Fiscal Policy LRAS SRAS AD Aggregate Price Level (P) Aggregate

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Answer #1

a) "A"

An expansionary fiscal policy will shift the AD curve and bring the economy back to the equilibrium in the market.

b) "A"

the fiscal policy that leads to full employment will be the best policy in the given scenario.

c) C"

The laffer curve represents the relation between the tax rate and the tax revenues as the rate rises after reaching a point the revenue starts falling.

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