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3. Discretionary fiscal policy and multiplier effects Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.8. The following graph shows the aggregate demand curves (AD and AD:), the short-run aggregate supply curve (SRAS), and the long-run aggregate supply curve (LRAS). The economy is currently at point A. PRICE LEVEL LRAS 140 130 SRAS24 120 8 8 132 124 120 116 112 100 200 300 400 500, 120 AD₂ AD 500 600 700 600 000 1000 REAL GDP (Billions of dollars); The economy is currently experiencing an inflationary gap of $ In order to close this gap, one option would be for the government to taxes do not change). If the government kept its purchases constant, it could also close the gap by billion. government purchases by $ billion (assuming net net taxes by $ billion.

3. Discretionary fiscal policy and multiplier effects Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.8. The following graph shows the aggregate demand curves (AD and AD:), the short-run aggregate supply curve (SRAS), and the long-run aggregate supply curve (LRAS). The economy is currently at point A. PRICE LEVEL LRAS 140 130 SRAS24 120 8 8 132 124 120 116 112 100 200 300 400 500, 120 AD₂ AD 500 600 700 600 000 1000 REAL GDP (Billions of dollars); The economy is currently experiencing an inflationary gap of $ In order to close this gap, one option would be for the government to taxes do not change). If the government kept its purchases constant, it could also close the gap by billion. government purchases by $ billion (assuming net net taxes by $ billion.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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3. Discretionary fiscal policy and multiplier effects Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.8. The following graph shows the aggregate demand curves (AD and AD:), the short-run aggregate supply curve (SRAS), and the long-run aggregate supply curve (LRAS). The economy is currently at point A. PRICE LEVEL LRAS 140 130 SRAS24 120 8 8 132 124 120 116 112 100 200 300 400 500, 120 AD₂ AD 500 600 700 600 000 1000 REAL GDP (Billions of dollars);
Transcribed Image Text:3. Discretionary fiscal policy and multiplier effects Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.8. The following graph shows the aggregate demand curves (AD and AD:), the short-run aggregate supply curve (SRAS), and the long-run aggregate supply curve (LRAS). The economy is currently at point A. PRICE LEVEL LRAS 140 130 SRAS24 120 8 8 132 124 120 116 112 100 200 300 400 500, 120 AD₂ AD 500 600 700 600 000 1000 REAL GDP (Billions of dollars);
The economy is currently experiencing an inflationary gap of $ In order to close this gap, one option would be for the government to taxes do not change). If the government kept its purchases constant, it could also close the gap by billion. government purchases by $ billion (assuming net net taxes by $ billion.
Transcribed Image Text:The economy is currently experiencing an inflationary gap of $ In order to close this gap, one option would be for the government to taxes do not change). If the government kept its purchases constant, it could also close the gap by billion. government purchases by $ billion (assuming net net taxes by $ billion.
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