The two figures below show the aggregate demand/supply and the government budget line for the economy of Mahdi. The budget line is simply the difference between government net tax revenues (1) and government spending (G). So the budget line BL = T-G. LAS The economy is presently at equilibrium. Note: For every $1 change in government spending, aggregate demand changes by $3. Price level a) What is the present level of GDP and the AD, price level in Mahdi? b) Is there a recessionary or an inflationary 1200 1400 1600 Real GDP gap? How much? c) Does government have a budget deficit or a surplus? How much? d) By how much must aggregate demand increase or decrease in order to move the Real budget balance economy to full-employment equilibrium? e) Draw in the new aggregate demand curve, 1000 1200 1400 1600 1800 2000 2200 labelled AD2. Real GDP f) What change in government spending is necessary in order to move the economy to full-employment equilibrium? g) What effect will this have on the level of GDP and price level? h) If government makes the change in (f), draw in the new budget line, labelled BL. i) What will be the new value of government's budget at this new GDP? Returning to the original equilibrium, suppose that government is committed to a balanced budget. i) What change in government spending is necessary in order to balance the budget at the present income level? k) Draw in the new budget line labelled BLs. I) What effect will the change in (k) have on aggregate demand? m) Draw in the new curve, labelled AD,. n) As a result of this change in aggregate demand, what will happen to the value of GDP and price level? o) What will be the new value of government's budget at this new GDP