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 they have leftover. The following graph plots the economy's initial aggregate demand curve (AD₂).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 place.Hint: Be sure the new aggregate demand curve (AD₂) is parallel to AD₁. You can see the slope of AD, by selecting it on the following graph.?1161141121101081061041021005AD₁10000102104 106 108110OUTPUT (Billions of dollars)1125known as theThe following graph plots equilibrium in the money market at an interest rate of 3% and a quantity of money equal to $15 billion.Money Supply114Show the impact of the Increase in government purchases on the Interest rate by shifting one or both of the curves on the following graph.Money Demand101520MONEY (Billions of dollars)11625AAD₂30dAD₂Money DemandMoney SupplySuppose 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 tobyat every price level. The impact of an increase in government purchases on the interest rate and the level of investment spending iseffect.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 AD, and AD₂ by selecting them on thegraph.

John Maynard Keynes devised the AD-AS model to explain changes in the economy's production and price…

5. Fiscal policy, the money market, and aggregate demand 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 (AD,). 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 place. Hint: Be sure the new aggregate demand curve (AD₂) is parallel to AD,. You can see the slope of AD, by selecting it on the following graph.

5. Fiscal policy, the money market, and aggregate demand 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 (AD,). 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 place. Hint: Be sure the new aggregate demand curve (AD₂) is parallel to AD,. You can see the slope of AD, 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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The following graph plots an aggregate demand curve. Using the graph, shift the aggregate demand curve to depict the impact that a tax hike has on the economy. Suppose the governments of two very similar economies, economy N and economy M, implement a tax cut of equal size. The tax cut in economy N is permanent, while the tax cut in economy M is temporary. The economies are otherwise completely identical. The tax cut will have a larger impact on aggregate demand in the economy with the (temporary tax cut/permanent tax cut) .
hi there is another picture as well
On the following graph illustrate the impact of a sudden decline in consumer confidence that reduces autonomous consumption by $50 billion. Assume MPC = 0.8.(a) What is the new equilibrium level of real output? (Don't forget the multiplier.)(b) How large is the real GDP gap?(c) What has happened to average prices?
1. Graphing the consumption function from the MPC Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.50. That is, if disposable income increases by $1, consumption increases by 50¢. Suppose further that last year disposable income in the economy was $450 billion and consumption was $350 billion. On the following graph, use the blue line (circle symbol) to plot this economy's consumption function based on these data. CONSUMPTION (Billions of dollars) 700 600 500 400 300 200 100 0 -100 0 100 200 300 400 500 600 DISPOSABLE INCOME (Billions of dollars) 700 800 (?) From the preceding data, you know that the level of saving in the economy last year was $ economy is billion and the marginal propensity to save in this Suppose that this year, disposable income is projected to be $550 billion. Based on your analysis, you would expect consumption to be S billion and saving to be $ billion.
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Suppose an economy had aggregate demand components with the following relationships: Consumption spending, C=140+.60*(DY) Investment spending,I=25+.15*Y Government Spending, G= 0 Net Export Spending,X=0 Tax collections, Tx=0 a. What is the equilibrium income for this economy? b. If the government decided to increase G spending by 6, what would be the new equilibrium income for this economy? c. If instead the government decided to reduce Tx (taxes) by 10, what would be the new equilibrium income for the economy? d. If instead the government decided to increase G spending and Increase Tx (taxes) by 20, what would be the new equilibrium for this economy?