The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession. Fiscal Policy 160 LRAS AS Price Level 140 120 100 80 60 8 40 20 20 0 AD AD. 1 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.6, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? billion Suppose instead that the MPC is 0.75.

The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession. Fiscal Policy 160 LRAS AS Price Level 140 120 100 80 60 8 40 20 20 0 AD AD. 1 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.6, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? billion Suppose instead that the MPC is 0.75.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 5P

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The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by changing toxes to reduce the burden of this recession. Fiscal Policy 140 LRAS AS 130 120 110 100 90 80 70 AD 60 50 AD, 40 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) Instructions: Enter your answer as a whole number. If you are entering a negative number include a minus sign. a. How much does oggregate demanci need to change to restore the economy to its long-run equilbrilum? billion b. If the MPC is 0.667, how much do taxes need to change to shift aggregate demand by the amount you found in part a? billion Suppose instead that the MPC is 0.5. C. How much does aggregate demand and taxes need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ [ billion and taxes need to change by $ billion. Price Level
The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession. Price Level 160 140 120 100 80 60 40 20 0 Fiscal Policy LRAS AD billion AS AD 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? billion b. If the MPC is 0.6, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? Suppose Instead that the MPC is 0.5. c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $[ billion and government purchases need to change by $ billion.
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The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession. Price Level 160 140 LA 120 100 80 60 40 20 0 Fiscal Policy LRAS AD₁ Real GDP (billions of dollars) billion AS 80 160 240 320 400 480 560 640 720 800 AD O Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? billion B b. If the MPC is 0.6, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? Suppose instead that the MPC is 0.75. c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $ billion.
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