Problem Solving-Government Purchases Exercise 2 (Algo) The graph below depicts an economy where an increase in aggregate demand has caused inflation. Assume the government decides to conduct fiscal policy by decreasing government purchases to restore full-employment GDP. Price Level 180 160 140 $ 120 100 80 An Real GDP (billions of dollars) 100 200 300 400 500 600 700 800 900 1000 0 billion Fiscal Policy LRAS billion AS AD < Prev 43.gif AD₁ 8 of 10 Next > 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? thisissparta.swf.mp3 Price Level 014342050574b1.jpg 160 AS LRAS b. If the MPC is 0.8, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? 180 Suppose instead that the MPC is 0.5. c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? billion and government purchases need to change by $ Aggregate demand needs to change by $ billion

Problem Solving-Government Purchases Exercise 2 (Algo) The graph below depicts an economy where an increase in aggregate demand has caused inflation. Assume the government decides to conduct fiscal policy by decreasing government purchases to restore full-employment GDP. Price Level 180 160 140 $ 120 100 80 An Real GDP (billions of dollars) 100 200 300 400 500 600 700 800 900 1000 0 billion Fiscal Policy LRAS billion AS AD < Prev 43.gif AD₁ 8 of 10 Next > 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? thisissparta.swf.mp3 Price Level 014342050574b1.jpg 160 AS LRAS b. If the MPC is 0.8, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? 180 Suppose instead that the MPC is 0.5. c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? billion and government purchases need to change by $ Aggregate demand needs to change by $ billion

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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