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Fiscal Policy Practice

Fiscal Policy Practice. Draw and Practice. Congress uses discretionary fiscal policy to the manipulate the following economy (MPC = .9). What type of gap? Contractionary or Expansionary needed? What are two options to fix the gap? How much needed to close gap?. LRAS. AS. P 2. Price level.

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Fiscal Policy Practice

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  1. Fiscal Policy Practice

  2. Draw and Practice Congress uses discretionary fiscal policy to the manipulate the following economy (MPC = .9) • What type of gap? • Contractionary or Expansionary needed? • What are two options to fix the gap? • How much needed to close gap? LRAS AS P2 Price level AD1 AD -$5 Billion $50FE $100 Real GDP (billions) 2

  3. Draw and Practice Congress uses discretionary fiscal policy to the manipulate the following economy (MPC = .8) LRAS • What type of gap? • Contractionary or Expansionary needed? • What are two options to fix the gap? • How much initial government spending is needed to close gap? AS Price level P1 AD2 AD1 +$40 Billion $800 $1000FE Real GDP (billions) 3

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