ECON 201 Lecture Notes - Lecture 9: Fiscal Multiplier, Full Employment, Demand Curve
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Refer to the data below.
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a. What is the equilibrium level of output?
What is the equilibrium price level?
b. Suppose that aggregate demand increases such that the amount of real output demanded rises by $7 billion at each price level. Insert the new values for real output demanded in the table below.
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What is the new equilibrium level of output?
What is the new equilibrium price level?
By what percentage will the price level increase?
Will this inflation be demand-pull inflation or will it be cost-push inflation?
c. If potential real GDP (that is, full-employment GDP) is $510 billion, what will be the size of the positive GDP gap after the change in aggregate demand?
d. If the government wants to use fiscal policy to counter the resulting inflation without changing tax rates, would it increase government spending or decrease it?