The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the governmentdecides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession.160Price Level140120100806040200Fiscal PolicyLRASAS80 160 240 320 400 480 560 640 720 800ADAD₁Real GDP (billions of dollars)billionInstructions: Enter your answers as a whole number.a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium?$billionb. If the MPC is 0.75, how much does government purchases need to change to shift aggregate demand by the amount you found inpart a?$Suppose Instead that the MPC is 0.9.C. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium?Aggregate demand needs to change by $billion and government purchases need to change by $billion.

Given information: Initial long-run equilibrium occurs at the intersection point of LRAS, AS, and…

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 Increasing government purchases to reduce the burden of this recession.

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 Increasing government purchases to reduce the burden of this recession.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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