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 (AD₂). 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 (AD₂) is parallel to AD₁. You can see the slope of AD, by selecting it on the following graph. PRICE LEVEL 114 112 110 100 106 104 100 MP₁ following 106 110 118 120 125 130 OUTPUT (Bons of dollars) 135 HO AD₂ AD₁

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 (AD₂). 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 (AD₂) is parallel to AD₁. You can see the slope of AD, by selecting it on the following graph. PRICE LEVEL 114 112 110 100 106 104 100 MP₁ following 106 110 118 120 125 130 OUTPUT (Bons of dollars) 135 HO AD₂ AD₁

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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