Refer to the information provided in Figure 9.5 below to answer the questions that follow. Figure 9.5
-Refer to Figure 9.5. If the economy is in equilibrium and the government increases taxes by $100 billion, equilibrium aggregate output ________ to $________ billion.

Question

Refer to the information provided in Figure 9.5 below to answer the questions that follow.  Figure 9.5
-Refer to Figure 9.5. If the economy is in equilibrium and the government increases taxes by $100 billion, equilibrium aggregate output ________ to $________ billion.

Quizplus · Accepted Answer

According to the graph, at the initial equilibrium, aggregate output is $1,500 billion. If the government increases taxes by $100 billion, it will lead to a decrease in consumption expenditure and investment expenditure. As a result, the aggregate demand curve will shift leftward from AD to AD'. The new equilibrium is at point E', where aggregate output is $1,300 billion. Therefore, equilibrium aggregate output decreases to $1,300 billion.

Refer to the Information Provided in Figure 9