I'd like help on first 3 subsections 3. The economy in Country X is in a recession, with real gross domestic product (GDP) $100 billion belowfull-employment output.(a) Draw one correctly labeled graph of the short-run and long-run Phillips curves, labeling the currentequilibrium point A.(b) Assume that the government increases spending by $20 billion to stimulate economic activity. Assume thatthe marginal propensity to save is 0.25. Calculate the maximum total change in real GDP that could occurfollowing the $20 billion increase in government spending.(c) On your graph in part (a), label the new equilibrium point B as a result of the increase in governmentspending.(d) Had the government lowered personal income taxes by $20 billion instead of increasing spending by$20 billion, would the maximum total change in real GDP be greater than, smaller than, or the same asthe one calculated in part (b) ? Explain.

Question 3: The macroeconomic model of Philips (PC) curve seeks to establish a relationship between…

Answered: 3. The economy in Country X is in a…

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 8PA

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I'd like help on first 3 subsections

3. The economy in Country X is in a recession, with real gross domestic product (GDP) $100 billion below
full-employment output.
(a) Draw one correctly labeled graph of the short-run and long-run Phillips curves, labeling the current
equilibrium point A.
(b) Assume that the government increases spending by $20 billion to stimulate economic activity. Assume that
the marginal propensity to save is 0.25. Calculate the maximum total change in real GDP that could occur
following the $20 billion increase in government spending.
(c) On your graph in part (a), label the new equilibrium point B as a result of the increase in government
spending.
(d) Had the government lowered personal income taxes by $20 billion instead of increasing spending by
$20 billion, would the maximum total change in real GDP be greater than, smaller than, or the same as
the one calculated in part (b) ? Explain.

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(d) Had the government lowered personal income taxes by $20 billion instead of increasing spending by $20 billion, would the maximum total change in real GDP be greater than, smaller than, or the same as the one calculated in part (b) ? Explain.

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