The graph below depicts an economy where an increase in aggregate demand has caused inflation. Assume the government decides

to conduct fiscal policy by decreasing government purchases to restore full$-$employment GDP$.$

Fiscal Policy

Instructlons: Enter your answer as a whole number. If you are entering a negative number include a minus sign.

a$.$ How much does aggregate demand need to change to restore the economy to its long$-$run equilibrium?

$ billion

b$.$ If the MPC is $0\mathrm{.}75,$ how much do government purchases need to change to shift aggregate demand by the amount you found in part

a$?$

$$,$ billion

Suppose instead that the MPC is $0\mathrm{.}6.$

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.