Discussion question 6

Assume that an economy is in equilibrium in terms of Price level based on consumer price index (CPI) and real GDP, with a CPI of 200 and real GDP of 500 (b$). The economy is experiencing high unemployment and the government intends to achieve near full employment by increasing real GDP to 550 (b$). How aggregate demand oriented expansionary fiscal policy by the government will increase aggregate demand? Discuss both a) demand-side fiscal policy and b) supply-side fiscal policy with a diagram for each.