The graph below depicts an economy where an increase in aggregate demand has caused inflation. Assume the government decidesto conduct fiscal policy by decreasing government purchases to restore full-employment GDP.Price Level180160140120100806040200Fiscal PolicyLRASASADAD,100 200 300 400 500 600 700 800 900 1000Real 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 aggregate demand need to change to restore the economy to its long-run equilibrium?$ (200) billionb. If the MPC is 0.75, how much does government purchases need to change to shift aggregate demand by the amount you found inpart a?$ (50) → billionSuppose instead that the MPC is 0.6.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 $ (200) billion and government purchases need to change by $billion.

Given information: Initial long-run equilibrium occurs at the intersection point of LRAS, AS, and…

The graph below depicts an economy where an increase in aggregate demand has caused inflation. Assume the government decides to conduct fiscal policy by decreasing government purchases to restore full-employment GDP. Price Level 180 160 140 120 100 80 60 40 20 0 Fiscal Policy LRAS AS * AD AD, 100 200 300 400 500 600 700 800 900 1000

The graph below depicts an economy where an increase in aggregate demand has caused inflation. Assume the government decides to conduct fiscal policy by decreasing government purchases to restore full-employment GDP. Price Level 180 160 140 120 100 80 60 40 20 0 Fiscal Policy LRAS AS * AD AD, 100 200 300 400 500 600 700 800 900 1000

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter20: Exchange Rates And The Macroeconomy

Section: Chapter Questions

Problem 3TY

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