(Solved): The graph below depicts an economy where an increase in aggregate demand has caused inflation. Ass ...

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 180 160 140 120 100 80 60 40 0 Fiscal Policy LRAS AD AS Real GDP (billions of dollars) AD? 100 200 300 400 500 600 700 800 Instructions: Enter your answer as a whole number. 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? $ (300) ? billion b. If the MPC is 0.667, 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 0.75. 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 $ (300) billion and taxes need to change by $ 100 billion.