4. Assume that the full employment level of output in an economy is $1000 and the price level
associated with full employment output is $100. Also assume that the current level of output
is $1,200 and at the full employment price level current aggregate demand is $1,600. The
MPC in the economy is 0.85. Draw a clearly labeled graph to demonstrate how the
government can move the economy back to the full employment level using TAXES. Indicate
the exact amount of change required. (Hint: Review the Fiscal Policy homework and examples
for a reminder of how to combine the graph and math calculations.)
1. Draw your own graph on a piece of paper (don't download a graph from the internet).
2. Clearly label all axes, lines, and equilibriums. Include all relevant information.
