Questions: Suppose that aggregate demand increases such that the amount of real output demanded rises by 13 billion at each price level. Instructions: Enter your answers as a whole number. a. By what percentage will the price level increase? 5 percent Will this inflation be demand-pull inflation, or will it be cost-push inflation? Demand-pull inflation b. 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? 2 billion c. If government wants to use fiscal policy to counter the resulting inflation without changing tax rates, would it increase government spending or decrease it? Decrease

To answer the questions, let's analyze the given data and the changes in aggregate demand.

| Original (Billions) | Price Level | Supplied (Billions) | |---------------------|-------------|---------------------| | $502 | 110 | 515 | | $506 | 105 | 512 | | $510 | 100 | 510 | | $514 | 95 | 507 | | $518 | 90 | 500 |

Aggregate demand increases such that the amount of real output demanded rises by $13 billion at each price level.

To determine the new equilibrium price level, we need to find the new quantity demanded at each price level and compare it to the quantity supplied.

| Original (Billions) | Price Level | Supplied (Billions) | New Demand (Billions) | |---------------------|-------------|---------------------|-----------------------| | $502 | 110 | 515 | 515 | | $506 | 105 | 512 | 525 | | $510 | 100 | 523 | 523 | | $514 | 95 | 520 | 520 | | $518 | 90 | 513 | 513 |

The new equilibrium occurs where the new demand equals the supplied amount. From the table, we see that the new demand of $523 billion matches the supplied amount at a price level of 100.

The original equilibrium price level was 100, and the new equilibrium price level remains 100. Therefore, the percentage increase in the price level is:

\[ \text{Percentage Increase} = \frac{\text{New Price Level} - \text{Original Price Level}}{\text{Original Price Level}} \times 100 \] \[ \text{Percentage Increase} = \frac{100 - 100}{100} \times 100 = 0\% \]

So, the answer is: \[ \boxed{0} \]

Potential real GDP (full-employment GDP) is $510 billion. After the change in aggregate demand, the new equilibrium output is $523 billion.

The positive GDP gap is the difference between the actual GDP and the potential GDP: \[ \text{Positive GDP Gap} = \text{Actual GDP} - \text{Potential GDP} \] \[ \text{Positive GDP Gap} = 523 - 510 = 13 \text{ billion} \]

So, the answer is: \[ \boxed{13} \]

To counter the resulting inflation, the government would need to decrease aggregate demand. One way to do this without changing tax rates is to decrease government spending.

So, the answer is: \[ \boxed{\text{Decrease}} \]

a. The percentage increase in the price level is \( \boxed{0} \). b. The size of the positive GDP gap after the change in aggregate demand is \( \boxed{13} \) billion. c. The government should \( \boxed{\text{Decrease}} \) government spending to counter the resulting inflation.