Price level1801701602 &&&RS R150140110120110100907060500LRASA. $1 billionB. $1.5 billionC. $2 billion.D. $3 billionReal GDP (Billions ofdollars)AD₁10ASAD₂1112An economy is initially in long-run equilibrium with a price level of 100 and real GDP of $5billion. Then, an increase in demand for exports shifts demand from AD; to AD₂. This causes GDPto increase to $7 billion and the price level to increase to 110. The federal government decidesto cut government spending in order to return to the long-run equilibrium and price level. Themarginal propensity to consume is 0.5. How much should the government reduce spending by?

An economy is initially in long run equilibrium with a price level of 100 and real GDP of $5…

Re An economy is initially in long-run billion. Then, an increase in demam to increase to $7 billion and the pri to cut government spending in ord marginal propensity to consume is A. $1 billion. B. $1.5 billion C. $2 billion. D. $3 billion

Re An economy is initially in long-run billion. Then, an increase in demam to increase to $7 billion and the pri to cut government spending in ord marginal propensity to consume is A. $1 billion. B. $1.5 billion C. $2 billion. D. $3 billion

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter7: Production And Growth

Section: Chapter Questions

Problem 5CQQ

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Question

Price level
180
170
160
2 &&&RS R
150
140
110
120
110
100
90
70
60
50
0
LRAS
A. $1 billion
B. $1.5 billion
C. $2 billion.
D. $3 billion
Real GDP (Billions of
dollars)
AD₁
10
AS
AD₂
11
12
An economy is initially in long-run equilibrium with a price level of 100 and real GDP of $5
billion. Then, an increase in demand for exports shifts demand from AD; to AD₂. This causes GDP
to increase to $7 billion and the price level to increase to 110. The federal government decides
to cut government spending in order to return to the long-run equilibrium and price level. The
marginal propensity to consume is 0.5. How much should the government reduce spending by?

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