1. Draw a real expenditures curve on a graph showing a recessionary gap. Explain what happens to real GDP when it is initially to the right of the equilibrium point and why. Indicate two public policies that would be appropriate for addressing this situation. Explain their impact on your graph.
2. Draw a real expenditures curve on a graph showing an inflationary gap. Explain what happens to real GDP when it is initially to the left of the equilibrium point and why. Indicate two public policies that would be appropriate for addressing this situation. Explain their impact on your graph.
3. Explain with the aid of a graph why a "self-correcting" recessionary gap cannot be relied upon to bring an economy out of recession.