The graph below depicts an economy where an increase in aggregate demand has caused Inflation. Assume the government decides to conduct fiscal policy by changing taxes to bring inflation under control. Price Level 160 150 140 130 120 110 100 90 80 70 60 50 Fiscal Policy LRAS AS AD AD 1 40 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) Instructions: Round your answers to 2 decimal places. 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 0.75, 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 $ billion.

The graph below depicts an economy where an increase in aggregate demand has caused Inflation. Assume the government decides to conduct fiscal policy by changing taxes to bring inflation under control. Price Level 160 150 140 130 120 110 100 90 80 70 60 50 Fiscal Policy LRAS AS AD AD 1 40 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) Instructions: Round your answers to 2 decimal places. 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 0.75, 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 $ billion.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter6: How Statisticians Measure Inflation

Section6.A: How Statisticians Measure Inflation

Problem 6TY

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