116114AD2112AD1110AD3108106104102100100102104106108110112114116OUTPUT (Billions of dollars)PRICE LEVEL 3. Fiscal policy, the money market, and aggregate demandConsider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The followinggraph shows the economy's initial aggregate demand curve (AD1 ).Suppose the government increases its purchases by $3 billion.Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2 ) after the multiplier effect takes place.Hint: 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 graph.

The marginal propensity to save is the portion of each extra dollar of a household’s income that's saved. The MPS indicates what the overall household sector does with extra income—specifically, the percent of extra income that is saved. The relationship between MPS and MPC is given below. MPS =1-MPC If households spend $0.50 of each additional dollar they earn and save the remaining $0.50. Then the MPS and MPC = 0.5 Suppose the government increases its purchases by $3.5 billion. Thus the total spending is increasing by multiplier times the change in government spending. The change in total spending can be calculated by: ∆Y= multiplier×∆G =11-mpc×∆G =11-0.05×3.5 billion =10.50×3.5 =2×3.5 = 7billion Thus the government spending increases by $3.5billioin will result in increases in spending by 7 billion. The fall in the investment by 1 billion decreases the quantity of output demand by S2 billion $1x2) by crowding out at each price level.The following figure is showing the AD, due to government purchases.

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3. Fiscal policy, the money market, and aggregate demand Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve (AD¡ ). Suppose the government increases its purchases by $3 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2 ) after the multiplier effect takes place. Hint: 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 graph.

3. Fiscal policy, the money market, and aggregate demand Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve (AD¡ ). Suppose the government increases its purchases by $3 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2 ) after the multiplier effect takes place. Hint: 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 graph.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve (AD1). Suppose the government increases its purchases by $2 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. Hint: 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 graph. 114 152 110 100 100 104 102 150 100 102 104 108 108 110 112 114 110 OUTPUT( 30 41 The following graph shows the money market in equilibrium at an interest rate of 1.5% and a quantity of money equal to $45 billion. SINNTEKIN 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. as 0 D 15 Money 30 MONEY Mordy Domene 45 00 of d A AD₂ 75 Ⓒ a Money Damen Many Sy (?)…
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The levels of real disposable income and aggregate expenditures for an economy are given in the following table. -- Use the blue points (circle symbol) to plot the expenditures line for this economy on the following graph. Line segments will automatically connect the points. The black line represents the 45-degree line, where aggregate expenditures equal real GDP. Use the black point (plus symbol) to indicate equilibrium real GDP. - - In the previous graph, if the economy produces at an output level that is higher than equilibrium GDP, then the economy is in because aggregate expenditures are real GDP, and unplanned inventory investment is Read GDP (Y) Aggregate Expenditures (AE) (Trillions of dollars per year) (Trillions of dollars per year) 0 1 1 1.75 2 2.5 3 3.25 4 4 5 4.75 6 5.5 7 6.25 8 7 Use the blue points (circle symbol) to plot the expenditures line for this economy on the following graph. Line segments will automatically connect the points. The black line represents the…
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Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD₁). Suppose now that the government increases its purchases by $3.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. Hint: 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 graph. PRICE LEVEL 116 114 112 110 108 106 104 102 100 100 AD1 102 106 108 110 OUTPUT (Billions of dollars) 104 112 114 1 116 AD2 AD 3 ?
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hi there is another picture as well