Last year, the nation of Giordia was at full employment and produced $2.3 trillion in real goods and services. This year, one of its major trading partners raised its tariffs on Giordian exports.

A. Using an AD/AS diagram, determine what will happen to the price level and the real GDP in Giordia.

B. The Giordian government decides to adjust its spending to combat the shock to Giordian exports. If there is a GDP gap of $400 billion and if the marginal propensity to save is 0.2, then what should the government do with its expenditures?

C. Suppose that instead of adjusting its spending, the Giordian government decides to adjust the taxes it levies on the economy. Using the information in part B, describe how the government should change taxese to eliminate the GDP gap.