Ch1 economics The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume thegovernment decides to conduct fiscal policy by changing taxes to reduce the burden of this recession.Price Level150140130120110100908070605040300Fiscal PolicyLRASAD₁ASReal GDP (billions of dollars)AD80 160 240 320 400 480 560 640 720 800 Instructions: 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?billionb. If the MPC is 0.6, how much do taxes need to change to shift aggregate demand by the amount you found in part a?$billionSuppose instead that the MPC is 0.5.c. How much does aggregate demand and taxes need to change to restore the economy to its long-run equilibrium?Aggregate demand needs to change by $billion and taxes need to change by $1billion.

The impact of change in aggregate demand due to the change in government spending is more than that…

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 changing taxes to reduce the burden of this recession. Price Level 150 140 130 120 110 100 90 80 70 60 50 40 Fiscal Policy LRAS AS AD

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 changing taxes to reduce the burden of this recession. Price Level 150 140 130 120 110 100 90 80 70 60 50 40 Fiscal Policy LRAS AS AD

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter30: Government Budgets And Fiscal Policy

Section: Chapter Questions

Problem 30RQ: Under what general macroeconomic circumstances might a government use expansionary fiscal policy?...

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Question

Ch1 economics

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 changing taxes to reduce the burden of this recession.
Price Level
150
140
130
120
110
100
90
80
70
60
50
40
30
0
Fiscal Policy
LRAS
AD₁
AS
Real GDP (billions of dollars)
AD
80 160 240 320 400 480 560 640 720 800

Instructions: 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 0.6, how much do taxes need to change to shift aggregate demand by the amount you found in part a?
$
billion
Suppose instead that the MPC is 0.5.
c. How much does aggregate demand and taxes need to change to restore the economy to its long-run equilibrium?
Aggregate demand needs to change by $
billion and taxes need to change by $1
billion.

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