Part 1 instructions:

* Describe economic terms and concepts in question.

* Describe your reasoning leading from concepts in question to the final answer.

*Write full sentences and use double spacing between paragraphs.

* Place copied sentences in quotation marks and list source materials used to arrive at your answers.

* Edit your work for sentence structure, spelling and appropriate formatting of paragraphs.

Your work should consist of at least 3 separate sections of text: 

 1) description of economic terms and concepts,

 2) your reasoning and 

3) concluding paragraph which states the final  answer.

Part 1 problem 1:

Refer to the table below. Suppose that aggregate demand increases such that the amount of real output demanded rises by $7 billion at each price level. By what percentage will the price level increase? Will this inflation be demand-pull inflation or will it be cost-push inflation? If potential real GDP (that is, full-employment GDP) is $510 billion, what will be the size of the positive GDP gap after the change in aggregate demand? If government wants to use fiscal policy to counter the resulting inflation without changing tax rates, would it increase government spending or decrease it?

Attachment:- 239797_1_homework-2.docx