3. Discretionary fiscal policy and multiplier effects Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.5 . The following graph shows the aggregate demand curves (AD1 and AD2 ), the short-run aggregate supply curve (SRAS), and the long-run aggregate supply curve (LRAS). The economy is currently at point A. (?) The economy is currently experiencing gap of balion. In order to close this gap, one option would be for the government to government purchases by bilition (assuming net taxes do not change). If the government kept its purchases constant, it could also close the gap by net taxes by billion