5. Fiscal policy, the money market, and aggregate demand Consider a hypothetical economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The following graph shows the economy's initial aggregate demand curve (AD1). Suppose the government increases its purchases by $3.75 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 (AD,) is parallel to AD,. You can see the slope of AD, by selecting it on the following graph. 116 114 AD2 112 AD, 110 AD, 108 106 104 102 100 100 105 110 115 120 125 130 135 140 OUTPUT (Billions of dollars) PRICE LEVEL
5. Fiscal policy, the money market, and aggregate demand Consider a hypothetical economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The following graph shows the economy's initial aggregate demand curve (AD1). Suppose the government increases its purchases by $3.75 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 (AD,) is parallel to AD,. You can see the slope of AD, by selecting it on the following graph. 116 114 AD2 112 AD, 110 AD, 108 106 104 102 100 100 105 110 115 120 125 130 135 140 OUTPUT (Billions of dollars) PRICE LEVEL
Chapter1: Making Economics Decisions
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Homework (Ch 16)
5. Fiscal policy, the money market, and aggregate demand
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Consider a hypothetical economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The following
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graph shows the economy's initial aggregate demand curve (AD1).
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Suppose the government increases its purchases by $3.75 billion.
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Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place.
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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.
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116
A
bongo
114
AD2
Evaluating Online
112
AD,
Information
110
AD3
108
e Help
106
Give Feedback
104
102
100
100
105
110
115
120
125
130
135
140
OUTPUT (Billions of dollars)
PRICE LEVEL
Transcribed Image Text:bongo
O Topic: H
G How wc
A Recorde
* Min x
b Answere
A Files
A Grades
Q ETX 20
Q Midtern
Q ETX 20
Q ЕTX 20
M Inbox (7
A Assignn
C Crunch
N Netflix
O (5) COA
ng.cengage.com/static/nb/ui/evo/index.html?deploymentld=5983131871027318950422967971&elSBN=97803571336688&id=D1056367112&isnapshotld=2191097&
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: Geoffrey v
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Homework (Ch 16)
The following graph shows the money market in equilibrium at an interest rate of 7.5% and a quantity of money equal to $60 billion.
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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.
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15.0
Money Supply
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Money Demand
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Money Supply
7.5
5.0
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Money Demand
Information
2.5
e Help
20
40
60
80
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120
Give Feedback
MONEY (Billions of dollars)
Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $0.5 billion. The change in the
interest rate (according to the change you made to the money market in the previous scenario) therefore causes the level of investment spending to
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INTEREST RATE
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The government expenditure multiplier is the ratio of change in income (∆Y) to a change in government spending (∆G)
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