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The following graph shows aggregate demand (AD) and aggregate supply (AS) curves for a hypothetical economy. (?) 140 A 135 AS 130 AD 2 125
The following graph shows aggregate demand (AD) and aggregate supply (AS) curves for a hypothetical economy. (?) 140 A 135 AS 130 AD 2 125 120 New Macro Eq PRICE LEVEL (CPI) 115 110 105 100 95 AD 200 0 240 260 280 300 320 340 360 380 400 REAL GDP (Billions of dollars) Suppose the full employment output level in this economy is $320 billion. In order to move the economy to full-employment output at the lowest possible price level, the aggregate demand curve must shift to the _ by at each price level. Use the green line (triangle symbols) to show the shift in aggregate demand necessary to return the economy to full employment. Then use the purple drop lines (diamond symbol) to show the macroeconomic equilibrium at full-employment output. Be sure the new aggregate demand curve (AD2) is parallel to AD1. You can click on AD, to see its slope. Suppose the government in this economy wants to enact fiscal policies that will shift the aggregate demand curve in the direction and magnitude you indicated. The marginal propensity to consume (MPC) in this economy is 0.8. This implies a spending multiplier of and a tax multiplier of
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