Nn2 -0.13cesSuppose that GDP in Newland is $700 billion and the government increases spending by $30 billion.0Interest rate (%)8765ST3210Graph A30 60 90 120150180210240270300330Quantity of money (billions of dollars)MSMD,ToolsMD₂Interest rate (%)2101110987653210Graph B10 20 30 40 50 60 70 80 90 100Investment spending (billions of dollars)S a. If the multiplier equals 5, what is the new level of GDP?$billionb. Suppose that as a result of the increase in GDP the price level in Newland also rises, causing the demand for money to increase by$90 billion. Show the new money demand, labelled MD2, in graph A above. Plot only the endpoints of the curve above.c. What will be the new interest rate?d. In graph B, by how much will investment spending change?$billion.e. Given the same value of the multiplier, what will be the new level of GDP?billion

Money demanded at different interest rate is represented money demand curve .The supply of money at…

13 Suppose that GDP in Newland is $700 billion and the government increases spending by $30 billion. Interest rate (%) 6 5 4 3 1 0 Graph A 30 60 90 120150180210240270300330 Quantity of money (billions of dollars) MS MD, Tools MD₂ Interest rate (8) 12 11 10 9 28 7 65432 2 1 0 Graph B 10 20 30 40 50 60 70 80 90 100 Investment spending (billions of dollars)

13 Suppose that GDP in Newland is $700 billion and the government increases spending by $30 billion. Interest rate (%) 6 5 4 3 1 0 Graph A 30 60 90 120150180210240270300330 Quantity of money (billions of dollars) MS MD, Tools MD₂ Interest rate (8) 12 11 10 9 28 7 65432 2 1 0 Graph B 10 20 30 40 50 60 70 80 90 100 Investment spending (billions of dollars)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Nn2

-0.13
ces
Suppose that GDP in Newland is $700 billion and the government increases spending by $30 billion.
0
Interest rate (%)
8
7
6
5
ST
3
2
1
0
Graph A
30 60 90 120150180210240270300330
Quantity of money (billions of dollars)
MS
MD,
Tools
MD₂
Interest rate (%)
210
11
10
9
8
7
6
5
3
2
1
0
Graph B
10 20 30 40 50 60 70 80 90 100
Investment spending (billions of dollars)
S

a. If the multiplier equals 5, what is the new level of GDP?
$
billion
b. Suppose that as a result of the increase in GDP the price level in Newland also rises, causing the demand for money to increase by
$90 billion. Show the new money demand, labelled MD2, in graph A above. Plot only the endpoints of the curve above.
c. What will be the new interest rate?
d. In graph B, by how much will investment spending change?
$
billion.
e. Given the same value of the multiplier, what will be the new level of GDP?
billion

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