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. PRICE LEVEL 116 114 112 110 108 106 104 102 100 100 AD 1 102 104 106 108 OUTPUT (Billions of dollars) 110 112 114 116 AD AD 2 3 ?

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. PRICE LEVEL 116 114 112 110 108 106 104 102 100 100 AD 1 102 104 106 108 OUTPUT (Billions of dollars) 110 112 114 116 AD AD 2 3 ?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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TOPIC: Consumption and Saving
Consider a hypothetical closed economy in which there are no income taxes. If household spends $0.50 of each additional dollar they earn and save remainder, the expenditure multiplier for this economy is