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Sagot :
Given Fabriland's economic recession, the international price of its textile products will be drastically reduced, thereby constraining its output and GDP.
The reduced price of products will hamper Fabriland's ability to ensure that its AD-AS (aggregate demand-aggregate supply) is in equilibrium.
However, with the increased government spending for economic diversification, the price and output of Fabriland, together with its AD/AS model will help it out of its over-reliance on textile income.
Thus, the country's AD/AS model will likely improve with the increased government spending for diversification of its economic base, leading to increased GDP and reduced inflation.
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