Course: ECO 110

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Unit 7 Practice Problem

Unit 7 Practice Problem

Graph an aggregate demand curve  (in general).  Describe what happens to the aggregate demand curve in the following events:

An increase in taxes for consumers at all levels of income

An increase in the desire of firms to invest, that is, they all buy more capital equipment

An increase in imports

A decrease in the overall level of prices

Consider the following graph:

What type of gap exists at point C?

What types of expansionary fiscal policy could be used to close the gap?