Solve it correctly Price LevelThe 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 Policy160LRAS140AS1201008060ADAD,402080 160 240 320 400 480 560 640 720 800Real 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 equlibrium?%24billionb. If the MPC is 0.6, how much does government purchases need to change to shift aggregate demand by the amount you found inpart a?billionSuppose instead that the MPC is 0.95.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

[a] Change required to restore the long-run equilibrium output = 400 - 320 = $80 billion. Thus, the…

Price Level 상 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 140 AS 120 100 80 60 AD AD, 40 20 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars)