Macro Topic 3.8 Fiscal Policy Part 3 - Bringing It All Together- For each of the following, assume aggregate output = $500 billion, potential output = $750 billion, and the marginal propensity to consume (MPC) is 0.8 9. Draw a correctly labeled AS/AD model reflecting the current state of the economy. Label the price level, PL,. 10. What is the least amount of government spending that could achieve full employment? Show your work. 11. Show the result of the government spending on the graph. Label the new price level, PL2 12. Assume instead that the government takes no action in response to this output gap and allows the economy to self-adjust. Would the result be a price level at PL,? Why or why not? 13. What are the benefits of allowing the economy to self-adjust? 14. What are the costs of allowing the economy to self-adjust? 15. What are the benefits of implementing fiscal policy to stabilize the economy? 16. What are the costs of implementing fiscal policy to stabilize the economy? Part 4 - Article Analysis- An alternative to deficit spending is a policy called austerity. Read the paragraph below and answer the following questions. "Austerity is a hard-earned lesson-one worth the pain only if it's correct. Shredding the social safety net during a recession causes widespread pain, especially among the poor and those who had reached the middle class. This tough medicine could be merited if it produced a quicker turnaround to economic health. But after a prolonged period of economic weakness, the eurozone as a whole has not yet attained its pre-crisis level of gross domestic product." - Michael Klein, The Brookings Institution, May, 2015 17. What is the difference between austerity and expansionary fiscal policy? 18. According to the excerpt above, what are two different problems associated with austerity? Copyright Jacob Clifford 2020. www.ACDCecon.com Video Help: http://bit.ly/2Hxs T2x Annual license required. Do not use unless you have purchased a license