Refer to Figure 9.7. The amount the government will have to pay to producers to sustain this policy is at least

For this question, assume that taxes are independent of income (i.e., the income tax rate is zero). Now suppose that fiscal policy makers wish to decrease equilibrium output by $500 billion. Further suppose that policy makers can choose one of the following two options: (1 ) change in government spending; or (2 ) change in taxes. Compare and explain the relative size of the changes in government

spending and taxes needed to obtain this desired change in output. What will be an ideal response?

Why does the aggregate demand (AD) curve slope downward? What could cause the AD curve to shift to the right? What impact would a rightward shift of the AD curve have on the economy?

What will be an ideal response?