The graph below depicts an economy where an increase in aggregate demand has caused inflation. Assume the government decidesto conduct fiscal policy by decreasing government purchases to restore full-employment GDP.Fiscal Policy160LRAS150AS14013012011010090AD,807060AD5040O 80 160 240 320 400 480 560 640 720 800Real GDP (billions of dollars)Instructions: Enter your answer as a whole number, If you are entering a negative number include a minus sign.n. How much does aggregate demand need to change to restore the economy to its long-run equilibrium?bilionb. If the MPC is 0.9, how much do government purchases need to change to shift aggregate demand by the amount you found in parta?bilionSuppose instead that the MPC is 0.6.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,Price Level

[a] To restore the aggregate demand, government had to reduce = 400-240 = $160 billion. Thus, the…

The graph below depicts an economy where an increase in aggregate demand has caused inflation. Assume the government decides to conduct fiscal policy by decreasing government purchases to restore full-employment GDP. Fiscal Policy 160 LRAS 150 AS 140 130 120 110 100 90 AD, 80 70 60 AD 50 40 80 160 240 320 400 480 560 640 720 800 Real GDP (bilions 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 0.9, now much do govermment purchases need to change to shift aggregate demand by the amount you found in part a? bilion Suppose instead that the MPC is 0.6. 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, 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 decreasing government purchases to restore full-employment GDP. Fiscal Policy 160 LRAS 150 AS 140 130 120 110 100 90 AD, 80 70 60 AD 50 40 80 160 240 320 400 480 560 640 720 800 Real GDP (bilions 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 0.9, now much do govermment purchases need to change to shift aggregate demand by the amount you found in part a? bilion Suppose instead that the MPC is 0.6. 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, Price Level

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.