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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 200 180- 100- 140- 120- 100- 80 60- 40 20- 0 Fiscal Policy LRAS AD₁ Real GDP (billions of dollars) AS AD

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 200 180- 100- 140- 120- 100- 80 60- 40 20- 0 Fiscal Policy LRAS AD₁ Real GDP (billions of dollars) AS AD

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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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. LRAS 180- 100- 140 120 K 100 80 60- 40 Price Level 200- 20 0 Fiscal Policy 0 AD₁ Real GDP (billions of dollars) AS AD
Transcribed Image Text: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. LRAS 180- 100- 140 120 K 100 80 60- 40 Price Level 200- 20 0 Fiscal Policy 0 AD₁ Real GDP (billions of dollars) AS AD
Instructions: Include a negative sign (-) if necessary. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. Assuming the MPC in this nation is 0.75, how much do taxes need to change to shift aggregate demand by the amount you found in part a? $ billion c. Now suppose the MPC is 0.6. To restore the economy to its long-run equilibrium, aggregate demand must be changed by $ billion. Ask your instructor a question billion and taxes must be changed by $
Transcribed Image Text:Instructions: Include a negative sign (-) if necessary. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. Assuming the MPC in this nation is 0.75, how much do taxes need to change to shift aggregate demand by the amount you found in part a? $ billion c. Now suppose the MPC is 0.6. To restore the economy to its long-run equilibrium, aggregate demand must be changed by $ billion. Ask your instructor a question billion and taxes must be changed by $
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