Assume the economy is currently in equilibrium at its full-employment level of cutput, the money market is in equilibrium, and the MPC =075 a. Suppose there is a decrease in consumer confidence that causes aggregate demand to decrease by $32 billion. Show the decrease points in aggregate demand on the graph. Instructions: Use the tool provided "Aggregate Demand"\" to plot the new aggregate demand curve. Plot only the endpoints of the line ! (2 points total). Use the tool provided "New GDP" to plot a new equilibrium. eBook @ E AD and AS Model References 200 Tools 180 7 -9 160 140 Aggregate Der New GDP 120 100 80 60 40 Price Level 20 16 32 48 64 B0 96 112128 144 160 . Real GDP (billions of dollars) ? Heal LUK (DIIoNS oT aonars) 2 points ! Now suppose the Federal Reserve wants to keep a recession from occurring and maintain cutput at the full-employment level. eBaok b. To restore this economy to the long-run equilibrium, the Federal Reserve needs to shift the aggregate demand curve to the left ~|by $ billion. References c. If the Federal Reserve were to stimulate investment demand to cause the shift in aggregate demand, with an MPC =075, investment demand would need to increase by billion to achieve the needed change in aggregate demand. d. Use the money market and investment demand graphs to illustrate the monetary policy change the Fed would need to make in order to restore aggregate demand and real GDP back to its long-run equilibrium levels. Instructions: In the investment demand graph below, use the tool provided "lnvestment\" to plot a new level of investment demand. Investment Demand Tools -9 Investment = c @ g @ & E o o B 2 @ 2 i=] 0 B 2 4 6 8 10 12 14 16 18 20 7 2 Instructions: In the money market graph below, use the tool provided "Mg 1" to draw a new money supply curve. Plot only the paints endpeints of the line (2 points total). Use the tool provided "New Equilibrium\" to plot a new equilibrium interest rate. ! Money Market eBook E Tools References / -0 Mg 4 New Equilibric = 3 g o 3 & Q o 7 g 2 = o A 20 40 60 80 100 120 140 160 180 Money (billions of dollars) e. For investment demand to increase by the necessary amount, the Fed would need to cause interest rates to fall from 8% to %