a) 480-400= 80 billion
b) 80 = 0.5*T/(1-0.5)
T= 80
Taxes should be decreases by 40 billion
c) aggregate demand must be changed by 80 billion and taxes must be changed by 20 billion
80= 0.8*T/(1-0.8)
T= 20
Problem Solving - Taxes Exercise 2 The graph below depicts an economy where a decline in...
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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 increasing government purchases to reduce the burden of this recession. Fiscal Policy LRAS Price Level 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium?...
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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.Instructions: Enter your answers as a whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? b. If the MPC...
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