The economy is operating above full employment

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Reference no: EM131092392

Please round all calculations to two decimal places.

a. Draw the appropriate graph assuming that the economy is operating above full employment. Assuming the aggregate demand excess is $1328B and MPC is .87, calculate the amount of desired fiscal restraint.

b. Given the situation in a, if government spending decreases by $198B, calculate the impact to aggregate demand. Illustrate this scenario on a separate graph from above. Is there a GDP gap? If so, what type?

c. Given the situation in a, calculate what would happen if the government increases taxes by $198B. Illustrate the affects on a separate graph. Is there a GDP gap? If so, what type?

d. Which type of government intervention (from scenarios B & C ABOVE) gets us closer to full employment output?

Reference no: EM131092392

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