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 (AD1AD1).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 (AD2AD2) after the multiplier effect takes place.Hint: Be sure the new aggregate demand curve (AD2AD2) is parallel to AD1AD1. You can see the slope of AD1AD1 by selecting it on the following graph. AutoSaveDocument1 - WordP SearchWilliams, LaToyaFileHomeInsertDesignLayoutReferencesMailingsReviewViewHelpFoxit PDFA ShareP CommentsX CutO Find -AaBbCcDc AaBbCcDc AaBbC AaBbCcC AaB1 Normal 1 No Spac. Heading 1Calibri (Body) v 11 A A Aa- AL CopyPasteReplaceDictateBIU - ab x, x A - I- A v三三三三三、、田。Heading 2TitleS Format PainterA SelectClipboardFontParagraphStylesEditingVoice116114AD2112AD,110AD,108106104102100100105110115120125130135140OUTPUT (Billions of dollars)2:13 PM12/2/2021Page 1 of 1O wordsLE Display Settings D Focus100%2:13 PMHom..OInbox...HCH...Work..Clinic.Orde..Revie...Signa.2 B AR..COP..O Mind...Docu..A 4)12/2/2021| < > 1>PRICE LEVEL出

In financial matters, a cash multiplier is one of different firmly related proportions of business bank cash to national bank cash (likewise called the financial base) under a partial hold banking framework. This different is the equal of the hold proportion less one, and it is a monetary multiplier.Multiplier = 1/(1-MPC)= 1/(1-0.75)=4 Increase in Government purchases= $3.75 billion Change in Agreegate Demand is Multiplier * Change in Government purchases AD increase = 4*$3.75 billion =$15 billion AD 1 shift to AD 2. Output increases from 130 to 145. 3.75*$0.75 billion= $2.8125 billion fall in investment Investment decreases by $1.25 billion AD fall= multiplier* change in investment= 2*$2.8125 billion= $5.625 billion AD2 shift to AD 3. Output decreases from 145 to 139.375

Answered: Consider a hypothetical economy in…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 (AD1AD1).

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 (AD2AD2) after the multiplier effect takes place.

Hint: Be sure the new aggregate demand curve (AD2AD2) is parallel to AD1AD1. You can see the slope of AD1AD1 by selecting it on the following graph.

AutoSave
Document1 - Word
P Search
Williams, LaToya
File
Home
Insert
Design
Layout
References
Mailings
Review
View
Help
Foxit PDF
A Share
P Comments
X Cut
O Find -
AaBbCcDc AaBbCcDc AaBbC AaBbCcC AaB
1 Normal 1 No Spac. Heading 1
Calibri (Body) v 11 A A Aa- A
L Copy
Paste
Replace
Dictate
BIU - ab x, x A - I- A v
三三三三三、
、田。
Heading 2
Title
S Format Painter
A Select
Clipboard
Font
Paragraph
Styles
Editing
Voice
116
114
AD2
112
AD,
110
AD,
108
106
104
102
100
100
105
110
115
120
125
130
135
140
OUTPUT (Billions of dollars)
2:13 PM
12/2/2021
Page 1 of 1
O words
LE Display Settings D Focus
100%
2:13 PM
Hom..
OInbox...
HCH...
Work..
Clinic.
Orde..
Revie...
Signa.
2 B AR..
COP..
O Mind...
Docu..
A 4)
12/2/2021
| < > 1>
PRICE LEVEL
出

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