2. Discretionary fiscal policy and multiplier effects Consider a hypothetical economy in which the marginal propensity t

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2 Discretionary Fiscal Policy And Multiplier Effects Consider A Hypothetical Economy In Which The Marginal Propensity T 1 (36.94 KiB) Viewed 34 times

2. Discretionary fiscal policy and multiplier effects Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.5. The following graph shows the aggregate demand curves (AD, and AD₂), the short-run aggregate supply curve (SRAS), and the long-run aggregate supply curve (LRAS). The economy is currently at point A. PRICE LEVEL 140 136 132 128 124 120 116 112 108 400 500 LRAS The economy is currently experiencing 9 AD, AD SRAS 124 600 700 800 900 1000 1100 1200 REAL GOP (Bilions of dollars) gap of S In order to close this gap, one option would be for the government to taxes do not change). billion. Ⓡ government purchases by S billion (assuming net