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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 changing taxes to reduce the burden of this recession. Fiscal Policy Price Level 150 LRAS AS 140 130 120 110 100 90 80 70 60 50 40 30 AD1 AD 0 80 160 240 320 400 480 560 640 720 800 Real 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? $ billion b. If the MPC is 0.5, how much do taxes need to change to shift aggregate demand by the amount you found in part a? billion Suppose Instead that the MPC is 0.6. c. How much does aggregate demand and taxes need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $[ billion and taxes need to change by $[ billion.

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 changing taxes to reduce the burden of this recession. Fiscal Policy Price Level 150 LRAS AS 140 130 120 110 100 90 80 70 60 50 40 30 AD1 AD 0 80 160 240 320 400 480 560 640 720 800 Real 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? $ billion b. If the MPC is 0.5, how much do taxes need to change to shift aggregate demand by the amount you found in part a? billion Suppose Instead that the MPC is 0.6. c. How much does aggregate demand and taxes need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $[ billion and taxes need to change by $[ billion.

Economics (MindTap Course List)
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter18: Debates In Macroeconomics Over The Role And Effects Of Government
Section18.10: Demand-side And Supply Side Views Of The Economy And Government Tools For The Changing Real Gdp
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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 changing taxes to reduce the burden of this recession. Fiscal Policy Price Level 150 LRAS AS 140 130 120 110 100 90 80 70 60 50 40 30 AD1 AD 0 80 160 240 320 400 480 560 640 720 800 Real 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? $ billion b. If the MPC is 0.5, how much do taxes need to change to shift aggregate demand by the amount you found in part a? billion Suppose Instead that the MPC is 0.6. c. How much does aggregate demand and taxes need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $[ billion and taxes need to change by $[ billion.
Transcribed Image Text: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 changing taxes to reduce the burden of this recession. Fiscal Policy Price Level 150 LRAS AS 140 130 120 110 100 90 80 70 60 50 40 30 AD1 AD 0 80 160 240 320 400 480 560 640 720 800 Real 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? $ billion b. If the MPC is 0.5, how much do taxes need to change to shift aggregate demand by the amount you found in part a? billion Suppose Instead that the MPC is 0.6. c. How much does aggregate demand and taxes need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $[ billion and taxes need to change by $[ billion.
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