Aa36 Economics The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the governmentdecides to conduct fiscal policy by changing taxes to reduce the burden of this recession.Price Level150140130120110100908070605040300Fiscal PolicyLRASASReal GDP (billions of dollars)ADAD80 160 240 320 400 480 560 640 720 800O 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?$billionb. If the MPC is 0.75, how much do taxes need to change to shift aggregate demand by the amount you found in part a?$billionSuppose instead that the MPC is 0.6.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 $ALAbillion.

The impact of change in aggregate demand due to the change in government spending is more than that…

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 AD AD 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars)

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 AD AD 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars)

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Fiscal Policy and Money Market

Fiscal policy is one of the important tools that is used by the government to control inflation or aggregate demand in the economy. Under this policy, there are two rules which are used by the government, one is the expenditure of the government and the other is the taxation or income of the government which it collects from the public.

Question

Aa36

Economics

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
AD
80 160 240 320 400 480 560 640 720 800
O

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?
$
billion
Suppose instead that the MPC is 0.6.
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 $
ALA
billion.

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