5. Fiscal policy, the money market, and aggregate demandSuppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 theyover. The following graph plots the economy's initial aggregate demand curve (AD1).Suppose now that the government increases its purchases by $2.5 billion.Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD₂) after the multiplier effect takes plaHint: Be sure the new aggregate demand curve (AD2) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the following gra(?)PRICE LEVEL11611411211010810610410210010012AD₁10102104 106 108 110 112OUTPUT (Billions of dollars)114116Money SupplyĮ þThe following graph plots equilibrium in the money market at an interest rate of 6% and a quantity of money equal to $15 billion.AD2Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph.AD 3Money Demand? The following graph plots equilibrium in the money market at an interest rate of 6% and a quantity of money equal to $15 billion.Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph.INTEREST RATE12102005Money Supplyknown as theMoney Demand101520MONEY (Billions of dollars)2530Money DemandMoney Supply(?)Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on thechanges made to the money market in the previous scenario, the new interest rate causes the level of investment spending to▼byTaking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded to▼by▼at every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is▼ effect.Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve (AD3) after accounting forthe impact of the increase in government purchases on the interest rate and the level of investment spending.Hint: Be sure your final aggregate demand curve (AD3) is parallel to AD₁ and AD₂. You can see the slopes of AD₁ and AD₂ by selecting them onthe graph.

. Fiscal policy, the money market, and aggregate demand uppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 t ver. The following graph plots the economy's initial aggregate demand curve (AD1). uppose now that the government increases its purchases by $2.5 billion. se the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect take. int: Be sure the new aggregate demand curve (AD₂) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the followin (?)

. Fiscal policy, the money market, and aggregate demand uppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 t ver. The following graph plots the economy's initial aggregate demand curve (AD1). uppose now that the government increases its purchases by $2.5 billion. se the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect take. int: Be sure the new aggregate demand curve (AD₂) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the followin (?)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Figure 16-7 Price level P3 a P₂ P₁ 0 LRAS A increase taxes LRAS 8 с Y₂ Ya contractionary fiscal policy O increase government spending O decrease interest rates SRAS₁ AD₁ SRAS AD₂ Refer to Figure 16-7. Given that the economy has moved from A to B in the graph above, which of the following would be the appropriate fiscal policy to achieve potential GDP? Real GDP (trillions of dollars)
A decrease in government purchases of $6 billion leads to an initial $4.5 billion decrease in withdrawals. a. In this case MPW is, MPC is, and the spending multiplier in this economy is Enter your responses for marginal propensities and multiplier values rounded to 2 decimal places. b. With this change in government purchases the AD curve shifts to the by $billion. Enter your response for the size of the curve shift rounded to 1 decimal place. Do not put a minus sign in your answer. c. As a result of this shift the equilibrium price level will (Click to select) vv and equilibrium real output will C A decrease in government purchases of $6 billion leads to an initial $4.5 billion decrease in withdrawals. MPC is a. In this case MPW is , and the spending multiplier in this economy is propensities and multiplier values rounded to 2 decimal places. Enter your responses for marginal b. With this change in government purchases the AD curve shifts to the (Click to select) by $ of the curve…
Help The aggregate demand curve can be derived from the aggregate expenditures model as indicated by the fact that Multiple Choice an increase in the price level shifts the aggregate expenditures schedule upward and increases real GDP a decrease in the price level shifts the aggregote expenditures schedule downward and decreases real GDP a decreose in the price level shifts the aggregate expenditures scheduie upiward and decreases real GDP an increase in the price level shifts the eggregate expenditures schedule downverd and decreases real GDP
Only typed answer The federal government decides to stimulate the economy and increases government expenditure on new infrastructure projects by $100 billion. The marginal propensity to consume is MPC = 0.3 and the marginal propensity to import is MPI = 0.08. Assuming no crowding out effect, what is the increase in output caused by the stimulus package of$100 billion in a closed economy?
Why does a $1 increase in government purchases lead to more than a $1 increase in income and spending? OA. Through the government purchases multiplier, the $1 increase in government spending will lead to a decrease in aggregate demand and national income, which will lead to a decrease in induced spending OB. Through the government purchases multiplier, the $1 increase in government spending will lead to an increase in aggregate demand and national income, which will lead to a decrease in induced spending OC. Through the government purchases multiplier, the $1 increase in government spending will lead to an increase in aggregate demand and national income, which will lead to an increase in induced spending OD. Through the government purchases multiplier, the $1 increase in government spending will lead to a decrease in aggregate demand and national income, which will lead to an increase in induced spending
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The graph shows an economy's aggregate demand and aggregate supply curves and potential GDP. Does this economy have an inflationary gap or a recessionary gap? How does this economy return to full employment? This economy has _______ gap. It returns to full employment as _______. A. an inflationary; the money wage rate rises B. a recessionary; potential GDP increases C. a recessionary; the money wage rate falls D. an inflationary; aggregate demand decreases
c. Given the original $20 billion level of exports, what would be net exports and the equilibrium GDP if imports were $10 billion greater at each level of GDP? Fill in the gray-shaded cells. Instructions: Enter your answers as a whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. (1) (2) (3) (4) (5) (6) Aggregate Expenditures, Private Closed Aggregate Expenditures, Open Economy, Billions Real Domestic Output (GDP = DI), Billions Exports, Billions Imports, Billions Net Exports, Billions Economy, Billions $350 $390 $20 $40 400 430 20 40 450 470 20 40 500 510 20 40 550 550 20 40 600 590 20 40 650 630 20 40 700 670 20 40 Net exports = $ billion Equilibrium GDP = $ billion d. What is the multiplier in this example?
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