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The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by
The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession. Fiscal Policy 160 LAAS 140 AS 120 100 Price Level HAD AD 20 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars)Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? billion Emmmmmm b. If the MPC is 0.8, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? S billion Suppose Instead that the MPC is 0.5. C. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $ billion
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