The economy is currently experiencing V gap of- billion. In order to close this gap, one option would be for the government to V government purchases by _billion (assuming net taxes do not change). If the government kept its purchases constant, it could also close the gap by V net taxes by billion. 2. Discretionary fiscal policy and multiplier effects Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.8. The following graph shows the aggregate demand curves (AD, and AD,), the short-run aggregate supply curve (SR.AS), and the long-run aggregate supply curve (LRAS). The economy is currently at point A. (? 140 LRAS 138 SRAS 124 132 A 128 124 PRICE LEVEL AD 120 116 AD, 112 108 200 300 400 500 800 700 800 900 1000 REAL GDP (Billions of dollars)