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Graph has Real GDP in billions on the horizontal axis and Price Level on the vertical axis. There are two downward-sloping lines, AD1 and AD2,
Graph has Real GDP in billions on the horizontal axis and Price Level on the vertical axis. There are two downward-sloping lines, AD1 and AD2, with AD2 to the right of AD1. An upward-sloping line is labeled SRAS and intersects AD1 at point 400 billion dollars, PLR. A vertical line LRAS has a horizontal axis value of 640 billion dollars. SRAS intersects AD2 and LRAS at the same point. AD1 intersects LRAS at PLE. Assume a marginal propensity to consume of 0.75. Which of the following fiscal policies could correct the economic situation above? Decreasing taxes by $60 billion Increasing taxes by $80 billion Increasing spending by $60 billion Decreasing spending by $80 billion Increasing spending by $240 billion
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