Suppose that we have an AEF given by the following:

= 6(200 ) + 0.7

Where the Marginal Propensity to Consume (MPC) = 80%, the tax rate (t) = 10% and the Marginal Propensity to Import (MPI) = 2%. Government Spending (G) is currently $200.

Suppose that Short-Run Aggregate Supply (SRAS) in this economy is also given by:

= 5

Suppose also that potential GDP (Y*) in this economy is equal to $900.

Suppose that this government is interested in closing this output gap as quickly as possible. It has two fiscal policy tools available to it. The first is the tax rate (t). The second is its Government Spending (G).

9. In our model, which of the three curves (AD, SRAS, LRAS) would be affected by each of these two fiscal policy tools? [2 points]

10. If the government closes this output through fiscal policy, what would be Real GDP and the price level once this gap is closed? Illustrate this shift on an AD-AS figure and calculate the exact p and Y. [3 points]

11. If the Government wants to change its Government Spending, how much does the government need to change the Government Spending (G) in order to fully close this output gap? [4 points]

Suppose instead that the government decides not to intervene, and instead let the market adjust naturally through the medium-run.

12. If the government decides not to close this output through fiscal policy, what would be Real GDP and the price level once this gap is closed? Illustrate this shift on an AD-AS figure and calculate the exact p and Y. [3 points]

NO PAPER WORK ONLY TYPED ANSWERS ASAP