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
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
![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 (AD₁).
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 AD₂. You can see the slope of AD, by selecting it on the following graph.
?
PRICE LEVEL
110
114
112
110
100
100
104
102
100
AD
100
105
110
115 120 125 130
OUTPUT (Billions of dollars)
135
140
19
AD₂
AD₁
The following graph shows the money market in equilibrium at an interest rate of 7.5% and a quantity of money equal to $60 billion.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F666c0b41-1ac8-42b4-9cb7-21df285e9740%2F48d01313-db82-44e1-bd87-438844bc8161%2Fxtdtwij_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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 (AD₁).
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 AD₂. You can see the slope of AD, by selecting it on the following graph.
?
PRICE LEVEL
110
114
112
110
100
100
104
102
100
AD
100
105
110
115 120 125 130
OUTPUT (Billions of dollars)
135
140
19
AD₂
AD₁
The following graph shows the money market in equilibrium at an interest rate of 7.5% and a quantity of money equal to $60 billion.
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