The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the governmentdecides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession.Fiscal Policy180LRASAS160140120100806040AD20AD,100 200 300 400 500 600 700 800 900Real GDP (billions of dollars)Inctructions: Enter your answers as a whole number.Price Level HelpSave & ExitP.6040AD20AD,100 200 300 400 500 600 700 800 900Real GDP (billions of dollars)Instructions: Enter your answers as a whole number.a. How much does aggregate demand need to increase to restore the economy to its long-run equilibrium?$4billionb. If the MPC is 0.6, how much does government purchases need to increase to shift aggregate demand by the amount you found inpart a?$4billionSuppose instead that the MPC is 0.95.c. How much does aggregate demand and government purchases need to increase to restore the economy to its long-runequilibrium?billion.billion and government purchases need to increase by $Aggregate demand needs to increase by $Dleut

Required increase in AD = Potential GDP - real GDP = (500 - 400) billion = $100 billion

a. How much does aggregate demand need to increase to restore the economy to its long-run equilibrium? %$4 billion b. If the MPC is 0.6, how much does government purchases need to increase to shift aggregate demand by the amount you found in part a? $ billion Suppose instead that the MPC is 0.95. c. How much does aggregate demand and government purchases need to increase to restore the economy to its long-run equilibrium? billion. billion and government purchases need to increase by $ Aggregate demand needs to increase by $

a. How much does aggregate demand need to increase to restore the economy to its long-run equilibrium? %$4 billion b. If the MPC is 0.6, how much does government purchases need to increase to shift aggregate demand by the amount you found in part a? $ billion Suppose instead that the MPC is 0.95. c. How much does aggregate demand and government purchases need to increase to restore the economy to its long-run equilibrium? billion. billion and government purchases need to increase by $ Aggregate demand needs to increase by $

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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