The graph below depicts an economy where an increase in aggregate demand has caused inflation. Assume the government decidesto conduct fiscal policy by changing taxes to bring inflation under control.Price LevelFiscal Policy16015014013012011010090807060504080 160 240 320 400 480 560 640 720 800LRASReal GDP (billions of dollars)ASAD₁AD 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?40 x billionb. If the MPC is 0.80, how much do taxes need to change to shift aggregate demand by the amount you found in part a?8 x billionSuppose instead that the MPC is 0.67.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 $8 ✩ billion and taxes need to change by $40billion.

Aggregate Demand:Aggregate demand is the total demand for goods and services within an economy at a…

The graph below depicts an economy where an increase in aggregate demand has caused inflation. Assume the government decides to conduct fiscal policy by changing taxes to bring inflation under control. LRAS 150 140 130 120 110 K 100 90 80 70 60 Price Level Fiscal Policy 160 AS AD₁ AD 50 40 80 160 240 320 400 480 560 640 720 800

The graph below depicts an economy where an increase in aggregate demand has caused inflation. Assume the government decides to conduct fiscal policy by changing taxes to bring inflation under control. LRAS 150 140 130 120 110 K 100 90 80 70 60 Price Level Fiscal Policy 160 AS AD₁ AD 50 40 80 160 240 320 400 480 560 640 720 800

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Explain the fiscal and monetary policy used in the attached document using IS model and the AD model
Please answer everything in the photos including the graph.
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22.
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The graph below depicts an economy where an increase in aggregate demand has caused Inflation. Assume the government decides to conduct fiscal policy by changing taxes to bring Inflation under control. Price Level 160 150 140 130 120 110 100 90 80 70 60 50 Fiscal Policy LRAS AS Real GDP (billions of dollars) AD₁ AD 40 80 160 240 320 400 480 560 640 720 800 Instructions: Round your answers to 2 decimal places. 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 0.75, 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 0.5. 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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Extra Credit The economy of the country Keinesia is heavily dependent on imported oil. Due to a crisis in the Middle East, the oil price has sharply increased. 1. What do you expect to happen to the equilibrium output and prices? Use the AD-AS model to illustrate it. 2. You are the economic adviser to the president of Keinesia. a. Would you advise him/her to implement Fiscal Policy? b. What type of Fiscal Policy would you recommend? c. Illustrate the effect of the Fiscal Policy on the equilibrium output and prices? Use the AD- AS model in part (a) to illustrate it.
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