1 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 changing taxes to reduce the burden of this recession. 2 points Fiscal Policy ! 150 LRAS =Book 140 L 130 (320, 135) 0 120 References 110 100 p=====3g-m-m--= 90 80 70 60 50 40 30 Price Level AD 0 80 160 240 320 400 480 560 640 720 800 Real GDP (billions 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 0.5, how much do taxes need to change to shift aggregate demand by the amount you found in part a? $ billion Suppose instead that the MPC is 0.6. c. How much does aggregate demand and taxes need Aggregate demand needs to change by $ to change to restore the economy to its long-run equilibrium? billion and taxes need to change by $ billion. 2 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 changing taxes to reduce the burden of this recession. 2 points Fiscal Policy ! 140 eBook 130 IE 120 References 110 g 100 o 90 o & 80 70 60 50 40 0 80 160 240 320 400 480 560 640 720 800 Real GDP (billions 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 0.5, how much do taxes need to change to shift aggregate demand by the amount you found in part a? $ billion Suppose instead that the MPC is 0.8. c. How much does aggregate demand and taxes need Aggregate demand needs to change by % to change to restore the economy to its long-run equilibrium? billion and taxes need to change by $ billion. 3 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. 2 points Fiscal Policy 160 LRAS eBook 150 140 AS 130 References 120 110 Price Level AD 1 AD 0 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars)Instructiens: Enter your answer as a whale number. If you are entering a2 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 0.75, how much do government purchases need to change to shift aggregate demand by the amount you found in part a7 $ billion 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