A. If Transylvania has an inflationary gap, what fiscal policies should Igor”s economists propose? B. If Transylvania has a deflationary gap, what
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A. If Transylvania has an inflationary gap, what fiscal policies should Igor”s economists propose? B. If Transylvania has a deflationary gap, what fiscal policies should Igor”s economists propose? C. Because the legislature decides to meet only at night, it takes a year to get a fiscal policy in place in Transylvania. Suppose that Igor”s economists predict that next year, without any government policy, Transylvania will have a deflationary gap. The government passes a fiscal policy that is designed to correct a deflationary gap. However, the prediction is incorrect and without any government policy Transylvania actually will have full employment. What happens when the fiscal policy takes effect? D. As Igor is sent packing back to his night job, explain to him what other factors might have hindered the success of fiscal policy.
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