Price Level 1200 1100 1000 900 800 700 600 500 400 300 200 100 AD SRAS LRAS 0 0 100 200 300 400 500 600 700 800 900 1000 1100 1200 Real GDP 4. In the image above, what kind of gap is shown? What kind of fiscal policy (expansionary or contrac- tionary) would be appropriate? 5. Suppose the MPC is .5. What is the spending multiplier? 6. Using your answer above, how much should the government decrease spending in order to close the gap?

Price Level 1200 1100 1000 900 800 700 600 500 400 300 200 100 AD SRAS LRAS 0 0 100 200 300 400 500 600 700 800 900 1000 1100 1200 Real GDP 4. In the image above, what kind of gap is shown? What kind of fiscal policy (expansionary or contrac- tionary) would be appropriate? 5. Suppose the MPC is .5. What is the spending multiplier? 6. Using your answer above, how much should the government decrease spending in order to close the gap?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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