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
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ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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1200
1100
1000
Price Level
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?
Transcribed Image Text:1200 1100 1000 Price Level 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?
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