I posted this question earlier and the answer was provided for the first part (image Q2) please complete directives for the second part (image Q2a). Thank you The graph illustrates the loanable funds market equilibrium at an interest rate of 3%. It is used to analyze the effect of increased government purchases on the interest rate by shifting one or both curves.### Graph Explanation:- **Axes**: The x-axis represents the "Quantity of Loanable Funds" in billions of dollars, ranging from 0 to 60. The y-axis represents the "Interest Rate", ranging from 0% to 6%.- **Supply Curve (Orange Line)**: It slopes upwards, indicating a positive correlation between the interest rate and the quantity of loanable funds supplied.- **Demand Curve (Blue Line)**: It slopes downwards, showing an inverse relationship between the interest rate and the quantity of loanable funds demanded.### Textual Description:Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $1 billion.- The increase in government purchases results in a rise in the interest rate in the money market from 3% to a higher rate, leading to a decrease in the level of investment spending by a specific amount in billions.- After accounting for the multiplier effect, changes in investment spending will cause a change in the quantity of output demanded by a certain amount in billions at each price level.- The impact of increased government purchases on the interest rate and investment spending level is known as the __________ effect.To visualize this:- Place the purple line on the graph to illustrate the aggregate demand curve, labeled AD1. Ensure the final aggregate demand curve (AD1) is parallel to AD0. You can adjust the slopes of AD0 and AD1 by interacting with the graph. Consider a hypothetical economy in which households spend $0.80 of each additional dollar they earn and save the remaining $0.20. The following graph shows the economy's initial aggregate demand curve ($AD_1$).Suppose the government **increases** its purchases by $2 billion.After the multiplier effect, the increase in government purchases will cause the quantity of output demanded to ______ by $______ billion at each price level.Place the green line (triangle symbol) on the following graph to show the aggregate demand curve ($AD_2$) after the multiplier effect takes place. Be sure the new aggregate demand curve ($AD_2$) is parallel to $AD_1$. Hover your mouse over the $AD_1$ curve to see its slope.### Graph Description:- **X-axis:** Quantity of Output (Billions of dollars)- **Y-axis:** Price Level- **Initial Aggregate Demand Curve ($AD_1$):** A downward sloping blue line from a price level of 112 at 100 billion dollars of output to a price level of 104 at 130 billion dollars of output.### Additional Elements:- **Legend:** - **$AD_2$:** Green line with triangle symbol - **$AD_3$:** Purple line with diamond symbolThe task is to adjust the $AD_2$ line parallel to $AD_1$ after government spending increases and the multiplier effect is taken into account.

According to the given information, MPC (marginal propensity to consume) is 0.8 and MPS (marginal propensity to save) is 0.2. The government spending multiplier can be calculated as follows: Thus, the value of multiplier (k) is 5.The value of multiplier (K) is 5 and change in government spending (G) is 2 million. The change in the quantity of output demanded can be calculated as follows: Thus, the increase in government spending will increase the quantity of output demanded is $10 billion.When government spending increased by $2 billion the aggregate demand curve will shift to the right by $10 billion at each level of price. It can be illustrated as follows:

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Consider a hypothetical economy in which households spend $0.80 of each additional dollar they earn and save the remaining $0.20. The following graph shows the economy's initial aggregate demand curve (AD1). Suppose the government increases its purchases by $2 billion. After the multiplier effect, the increase in government purchases will cause the quantity of output demanded to by billion at each price level. Place the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. Be sure the new aggregate demand curve (AD2) is parallel to AD . Hover your mouse over the AD1 curve to see its slope.

Consider a hypothetical economy in which households spend $0.80 of each additional dollar they earn and save the remaining $0.20. The following graph shows the economy's initial aggregate demand curve (AD1). Suppose the government increases its purchases by $2 billion. After the multiplier effect, the increase in government purchases will cause the quantity of output demanded to by billion at each price level. Place the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD2) after the multiplier effect takes place. Be sure the new aggregate demand curve (AD2) is parallel to AD . Hover your mouse over the AD1 curve to see its slope.

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

I posted this question earlier and the answer was provided for the first part (image Q2) please complete directives for the second part (image Q2a). Thank you

The graph illustrates the loanable funds market equilibrium at an interest rate of 3%. It is used to analyze the effect of increased government purchases on the interest rate by shifting one or both curves.

### Graph Explanation:
- **Axes**: The x-axis represents the "Quantity of Loanable Funds" in billions of dollars, ranging from 0 to 60. The y-axis represents the "Interest Rate", ranging from 0% to 6%.
- **Supply Curve (Orange Line)**: It slopes upwards, indicating a positive correlation between the interest rate and the quantity of loanable funds supplied.
- **Demand Curve (Blue Line)**: It slopes downwards, showing an inverse relationship between the interest rate and the quantity of loanable funds demanded.

### Textual Description:
Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $1 billion.

- The increase in government purchases results in a rise in the interest rate in the money market from 3% to a higher rate, leading to a decrease in the level of investment spending by a specific amount in billions.
- After accounting for the multiplier effect, changes in investment spending will cause a change in the quantity of output demanded by a certain amount in billions at each price level.
- The impact of increased government purchases on the interest rate and investment spending level is known as the __________ effect.

To visualize this:
- Place the purple line on the graph to illustrate the aggregate demand curve, labeled AD1. Ensure the final aggregate demand curve (AD1) is parallel to AD0. You can adjust the slopes of AD0 and AD1 by interacting with the graph.

Consider a hypothetical economy in which households spend $0.80 of each additional dollar they earn and save the remaining $0.20. The following graph shows the economy's initial aggregate demand curve ($AD_1$).

Suppose the government **increases** its purchases by $2 billion.

After the multiplier effect, the increase in government purchases will cause the quantity of output demanded to ______ by $______ billion at each price level.

Place the green line (triangle symbol) on the following graph to show the aggregate demand curve ($AD_2$) after the multiplier effect takes place. Be sure the new aggregate demand curve ($AD_2$) is parallel to $AD_1$. Hover your mouse over the $AD_1$ curve to see its slope.

### Graph Description:

- **X-axis:** Quantity of Output (Billions of dollars)
- **Y-axis:** Price Level
- **Initial Aggregate Demand Curve ($AD_1$):** A downward sloping blue line from a price level of 112 at 100 billion dollars of output to a price level of 104 at 130 billion dollars of output.

### Additional Elements:

- **Legend:**
- **$AD_2$:** Green line with triangle symbol
- **$AD_3$:** Purple line with diamond symbol

The task is to adjust the $AD_2$ line parallel to $AD_1$ after government spending increases and the multiplier effect is taken into account.

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