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Price Level 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. Fiscal Policy 160 LRAS 150 140 130 120 110 100 90 80 70 60 50 40 AD₁ AD AS 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) 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? 40 billion b. If the MPC is 0.67, how much do taxes need to change to shift aggregate demand by the amount you found in part a? $ 13 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 $ 20 40 billion.

Price Level 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. Fiscal Policy 160 LRAS 150 140 130 120 110 100 90 80 70 60 50 40 AD₁ AD AS 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) 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? 40 billion b. If the MPC is 0.67, how much do taxes need to change to shift aggregate demand by the amount you found in part a? $ 13 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 $ 20 40 billion.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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am. 178.

Price Level 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. Fiscal Policy 160 LRAS 150 140 130 120 110 100 90 80 70 60 50 40 AD₁ AD AS 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) 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? 40 billion b. If the MPC is 0.67, how much do taxes need to change to shift aggregate demand by the amount you found in part a? $ 13 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 $ 20 40 billion.
Transcribed Image Text:Price Level 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. Fiscal Policy 160 LRAS 150 140 130 120 110 100 90 80 70 60 50 40 AD₁ AD AS 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) 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? 40 billion b. If the MPC is 0.67, how much do taxes need to change to shift aggregate demand by the amount you found in part a? $ 13 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 $ 20 40 billion.
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