9 The graph below depicts an economy where an increase in aggregate demand has c

Question

9

The graph below depicts an economy where an increase in aggregate demand has caused inflation. Assume the government decides to change taxes as fiscal policy to bring inflation under control. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $_____billion Assuming the MPC in this nation is 0.75. how much do taxes need to change to shift aggregate demand by the amount you found in ? $______billion Now suppose the MPC is 0.6. To restore the economy to its long-run equilibrium, aggregate demand must be changed by $_____billion and taxes must be changed by $______billion.

Explanation / Answer

a. -$120 billion

b. 40 billion

c. -$120 billion , and $80 billions

If you don't understand any thing then comment, I'ill revert back on the same. :)

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