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? $ 240 billion b. If the MPC is 0.6, 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 $ 240 billion and taxes need to change by $ billion.

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? $ 240 billion b. If the MPC is 0.6, 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 $ 240 billion and taxes need 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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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?
240 billion
b. If the MPC is 0.6, 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 $
240 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.
Price Level
150
140
130
120
110
100
90
80
70
60
50
40
30
0
Fiscal Policy
LRAS
AS
Real GDP (billions of dollars)
AD
AD1
80 160 240 320 400 480 560 640 720 800

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Step 2: Computation of change in aggregate demand to restore the economy to its long run equilibrium:

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Step 4: Computation of tax multiplier when MPC = 0.5:

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