1. Real GDP is currently $600 billion above potential GDP and price inflation is beginning to dominate the headlines. Draw a correctly labeled ADIAS graph to show the problem in the economy. How could the government adjust taxes or transfers to return the economy to full employment? Assume the MPC=.75. How large would this lump-sum adjustment need to be? Show the impact of the policy on output and price level on the graph you drew previously. Because of inflation, transfers could be cut or taxes could be raised to fix it. To reduce the real GDP by 600 billion dollars, taxes can be increased by 200 billion dollars or transfers can be decreased by 200 billion dollars