Consider a hypothetical closed economy in which households spend $0.65 of each additional dollar they earn and save the remaining $0.35. The marginal propensity to consume (MPC) for this economy is 0.65 ▼, and the spending multiplier for this economy is 2.8571 ▼ Suppose the government in this economy decides to increase government purchases by $350 billion. The increase in government purchases will lead to an increase in income, generating an initial change in consumption equal to $500 billion. This increases income yet again, causing a second change in consumption equal to ▼. The total change in demand resulting from the initial change in government spending is The following graph shows the aggregate-demand curve (AD₁) for this economy before the change in government spending. Use the green line (triangle symbol) to plot the new aggregate-demand curve (AD2) after the multiplier effect takes place. For simplicity, assume that there is no "crowding out." Hint: Be sure that the new aggregate-demand curve (AD2) is parallel to the initial aggregate-demand curve (AD1). You can see the slope of AD₁ by selecting it on the graph. 140 135 130 125 AD₁ AD₂ ?

Consider a hypothetical closed economy in which households spend $0.65 of each additional dollar they earn and save the remaining $0.35. The marginal propensity to consume (MPC) for this economy is 0.65 ▼, and the spending multiplier for this economy is 2.8571 ▼ Suppose the government in this economy decides to increase government purchases by $350 billion. The increase in government purchases will lead to an increase in income, generating an initial change in consumption equal to $500 billion. This increases income yet again, causing a second change in consumption equal to ▼. The total change in demand resulting from the initial change in government spending is The following graph shows the aggregate-demand curve (AD₁) for this economy before the change in government spending. Use the green line (triangle symbol) to plot the new aggregate-demand curve (AD2) after the multiplier effect takes place. For simplicity, assume that there is no "crowding out." Hint: Be sure that the new aggregate-demand curve (AD2) is parallel to the initial aggregate-demand curve (AD1). You can see the slope of AD₁ by selecting it on the graph. 140 135 130 125 AD₁ 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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