Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.6. The following graph shows the aggregate demand curves (AD₁ and AD2), the short-run aggregate supply curve (SRAS), and the long-run aggregate supply curve (LRAS). The economy is currently at point A. PRICE LEVEL 140 LRAS 136 132 128 24 124 120 116 112 10 108 550 650 750 SRAS 124 AD2 850 950 1050 AD₁ 1150 1250 1350 REAL GDP (Billions of dollars) The economy is currently experiencing ? gap of $ billion. In order to close this gap, one option would be for the government to taxes do not change). government purchases by $ billion (assuming net
Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.6. The following graph shows the aggregate demand curves (AD₁ and AD2), the short-run aggregate supply curve (SRAS), and the long-run aggregate supply curve (LRAS). The economy is currently at point A. PRICE LEVEL 140 LRAS 136 132 128 24 124 120 116 112 10 108 550 650 750 SRAS 124 AD2 850 950 1050 AD₁ 1150 1250 1350 REAL GDP (Billions of dollars) The economy is currently experiencing ? gap of $ billion. In order to close this gap, one option would be for the government to taxes do not change). government purchases by $ billion (assuming net
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.6. The following graph shows the aggregate demand curves
(AD₁ and AD2), the short-run aggregate supply curve (SRAS), and the long-run aggregate supply curve (LRAS). The economy is currently at
point A.
PRICE LEVEL
140
LRAS
136
132
128
24
124
120
116
112
10
108
550
650
750
SRAS
124
AD2
850
950 1050
AD₁
1150
1250
1350
REAL GDP (Billions of dollars)
The economy is currently experiencing
?
gap of $
billion.
In order to close this gap, one option would be for the government to
taxes do not change).
government purchases by $
billion (assuming net
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