Use the following graph to answer the next question. Price Level I I AS Yo AD, AD₂ ADO Y₁ Y₂ Y₂ Real GDP Suppose an economy's full employment output is at the level Y₁, and the economy's current aggregate demand is represented by AD2. If the government swiftly implements contractionary fiscal policy that immediately shifts the economy's aggregate demand to AD, the short to medium term aggregate demand would be most closely represented by AD₁

Use the following graph to answer the next question. Price Level I I AS Yo AD, AD₂ ADO Y₁ Y₂ Y₂ Real GDP Suppose an economy's full employment output is at the level Y₁, and the economy's current aggregate demand is represented by AD2. If the government swiftly implements contractionary fiscal policy that immediately shifts the economy's aggregate demand to AD, the short to medium term aggregate demand would be most closely represented by AD₁

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that the government provides each taxpayer with a $1,000 tax rebate financed by issuing additional Treasury bonds. Outline alternative views that predict how this fiscal action will influence interest rates, aggregate demand, output, and employment.
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17 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. Price Level 160 140 120 100 80 60 40 20 0 (40, 100) Fiscal Policy LRAS प्रै ======= AD₁ billion AS 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) $| Suppose instead that the MPC is 0.5. AD Instructions: 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? $ billion b. If the MPC is 0.6, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? 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.
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