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 (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 (AD) 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.?PRICE LEVEL116114112110108106104102100100AD₁102106 108 110OUTPUT (Billions of dollars)104112114116AD₂AD₂ oter 20 HomeworkINTEREST RATE3.02.52.01.51.00.505Money Supplyknown as theMoney Demand101520MONEY (Billions of dollars)2530Money DemandMoney SupplySuppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $1 billion. Based on thechanges made to the money market in the previous scenario, the new interest rate causes the level of investment spending to ▼byrisefallbyTaking the multiplier effect into account, the change in investment spending will cause the quantity of output demanded toat 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 (AD) 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 (AD) is parallel to AD, and AD. You can see the slopes of AD, and AD by selecting them on the

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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 (AD) 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. ? PRICE LEVEL 116 114 112 110 108 100 104 102 100 100 AD₁ 102 104 106 108 110 OUTPUT (Billions of dollars) 112 114 116 AD₂ AD₂

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 (AD) 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. ? PRICE LEVEL 116 114 112 110 108 100 104 102 100 100 AD₁ 102 104 106 108 110 OUTPUT (Billions of dollars) 112 114 116 AD₂ AD₂

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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This question has four parts, here is the fourth and final part. 1.4. Create a graph for the aggregate expenditures (AE) model in Excel using the data from Table 1: A Private Closed Economy. (table 1 is in the attachment) tips: Remember, the 45degree line (also known as the Keynesian Cross) is a tool that shows how differences in aggregate expenditures and real GDP can affect business inventories which will affect future levels of real GDP. Aggregate expenditure and GDP are both function of consumption, investment, government spending, and net exports. So, the equations for the two are identical: Y = C + I + G + NX, and AE (aggregate expenditure) = C + I + G + NX For private closed economy the equation is: Y = C + I , and AE (aggregate expenditure) = C + I
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
8. Agreement and disagreement among economists Suppose that Kevin, an economist from a consulting firm, and Maria, another economist from a graduate program in the Northeast, are both guests a popular science podcast. The host of the podcast is facilitating their debate over budget deficits. The following dialogue represents a portion of the transcript of their discussion: Maria: Most people recognize that the budget deficit has been rising considerably over the last century. We need to find the best course of action to remedy this situation. Kevin: I believe that a cut in income tax rates would boost economic growth and raise tax revenue enough to reduce budget deficits. Maria: I actually feel that raising the top income tax rate would reduce the budget deficit more effectively. The disagreement between these economists is most likely due to Despite their differences, with which proposition are two economists chosen at random most likely to agree? Central banks should focus more on…
1.) If the MPC is 0.8 and taxes increase by $100 billion, what is the effect on equilibrium RGDP? equilibrium RGDP will fall by $80 billion equilibrium RGDP will fall by $125 billion equilibrium RGDP will fall by $400 billion equilibrium RGDP will fall by $500 billion 2.) If equilibrium RGDP is $10000 billion and full employment GDP is $9000 billion, and the MPC = 0.75, what is the appropriate fiscal policy to return the economy to full employment GDP reduce taxes by $250 billion reduce taxes by $333.33 billion raise taxes by $250 billion raise taxes by $333.33 billion
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?
For the following problem, assume that the MPC, b, takes into account how much consumers spend as total income (Y) in the economy is changes. (Also: Hint GDP = Total Y) So we can rewrite our consumption function as :C= a +bYAssume:a= $2900 billionb=.75GDP= $9,000 billion.A) What is C=B) What is S=C) If consumers were the only ones buying goods in the economy, would the economy have an excess supply of goods, excess demand of goods or would the economy be at equilibrium ?
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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 110 114 112 110 108 108 104 102 100 AD. 100 9 102 104 108 108 110 112 114 118 OUTPUT (Billions of dollars) ง AD₂ $ AD₂ The following graph plots equilibrium in the money market at an interest rate of 1.5% and a quantity of money equal to $45 billion.
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