1. The accompanying diagram shows the current macroeconomic situation for the economy of Albernia. You have been hired as an economic consultant to help the economy move to potential output, YP.
Is Albernia facing a recessionary or inflationary gap?
Which type of fiscal policy—expansionary or contractionary—would move the economy of Albernia to potential output, YP? What are some examples of such policies?
Illustrate the macroeconomic situation in Albernia with a diagram after the successful fiscal policy has been implemented.