a. Draw the appropriate graph assuming that the economy is operating below full employment. Assuming the aggregate demand shortfall is $1466B and MPC is .72, calculate the amount of desired fiscal stimulus.
b. Given the situation in a, if government spending increases by $570B, 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 cut taxes by $570B. 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?