Refer to Figures 1a and 1b in the Appendix. Assume that Q1 is 300, Q2 is 200, Q3 is 100, P3 is 120, P 2 is 100, and P1 is 80. If the price level increases from P1 to P3 in graph 1b, in what direction and by how much will real GDP change? If the slopes of the AE lines in Figure 1a are .8 and equal to the MPC, in what direction will the aggregate expenditures schedule in Figure 1a need to shift to produce the previously determined change in real GDP? What is the size of the multiplier in this example?

Figure 1a:

Figure 1b:

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Aggregate expenditures (billions of dollars) 45 AE (at P) AE (at P) AE, (at P) Q Q Real domestic output, GDP (a)