Saved 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. Fiscal Policy 150 LRAS 140 AS 23:51 130 120 110 Price Level 100 90 80 (320,90) 70 60 AD 50 40 AD 1 30 0 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) 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? $ billion b. If the MPC is 0.75, how much do taxes need to change to shift aggregate demand by the amount you found in part a? EA $ billion Suppose instead that the MPC is 0.8. 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 $ billion.
Saved 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. Fiscal Policy 150 LRAS 140 AS 23:51 130 120 110 Price Level 100 90 80 (320,90) 70 60 AD 50 40 AD 1 30 0 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) 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? $ billion b. If the MPC is 0.75, how much do taxes need to change to shift aggregate demand by the amount you found in part a? EA $ billion Suppose instead that the MPC is 0.8. 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 $ billion.
Chapter11: Fiscal Policy
Section: Chapter Questions
Problem 1.7P
Question
![Saved
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.
Fiscal Policy
150
LRAS
140
AS
23:51
130
120
110
Price Level
100
90
80
(320,90)
70
60
AD
50
40
AD 1
30
0
80 160 240 320 400 480 560 640 720 800
Real GDP (billions of dollars)
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?
$
billion
b. If the MPC is 0.75, how much do taxes need to change to shift aggregate demand by the amount you found in part a?
EA
$
billion
Suppose instead that the MPC is 0.8.
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 $
billion.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5da13d65-216e-4682-b73b-baa929579699%2Fe2bbffaa-0254-4638-b388-c39c9d8b8e33%2Fril7pd_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Saved
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.
Fiscal Policy
150
LRAS
140
AS
23:51
130
120
110
Price Level
100
90
80
(320,90)
70
60
AD
50
40
AD 1
30
0
80 160 240 320 400 480 560 640 720 800
Real GDP (billions of dollars)
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?
$
billion
b. If the MPC is 0.75, how much do taxes need to change to shift aggregate demand by the amount you found in part a?
EA
$
billion
Suppose instead that the MPC is 0.8.
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 $
billion.
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