Instructions: Enter your answers as a whole numbera. How much does aggregate demand need to change to restore the economy to its long-run equilibrium?billionb. If the MPC is 0.75, how much does govemment purchases need to change to shift aggregate demand by the amount you found inpart a?billionSuppose instead that the MPC is 06.C How much does aggregate demand and governmenit purchases need to change to restore the economy to its long-run equilibrium?Aggregate demand needs to change by Sbillion and govermment purchases need to change by S80 billion The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the governmentdecides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession.Fiscal Policy160LRAS140AS1201008060ADAD402080 160 240 320 400 480 560 640 720 800Real GDP (billions of dollars)Price Level

The aggregate demand curve would result in the downward sloping curve which has a relation between…

a. How much does aggregate demand need to change to restore the economy to its long run equilibrium? billion b. If the MPC is 0.75, how much does govemment purchases need to change to shift aggregate demand by the amount you found in part a billion Suppose instead that the MPC is 0.6. c. How much does aggregate demand and governmerit purchases need to change to restore the economy to its long-run equilibrnum? Aggregate demand needs to change by $ billion and governiment purchases need to change by $ blon