**Homework (Ch 21)**Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve ($AD_1$).Suppose the government increases its purchases by $3 billion.Use the green line (triangle symbol) on the following graph to show the aggregate demand curve ($AD_1$) after the multiplier effect takes place.**Hint:** Be sure the new aggregate demand curve ($AD_2$) is parallel to $AD_1$. You can see the slope of $AD_1$ by selecting it on the following graph.**Graph Explanation:**- The vertical axis represents the Price Level, ranging from 102 to 116.- The horizontal axis represents Output in Billions of dollars, ranging from 100 to 116.- $AD_1$ is shown as a downward-sloping line on the graph, starting at a Price Level of 112 when Output is 100 billion dollars, and decreasing as Output increases.- The green line (triangle symbol) should be drawn parallel to $AD_1$ to represent the new aggregate demand curve ($AD_2$) after the government's increase in purchases and the multiplier effect have taken place. **Homework (Ch 21)**The following graph shows the money market in equilibrium at an interest rate of 6% and a quantity of money equal to $30 billion.**Instructions:** Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph.**Graph Description:**- **Axes:** - The vertical axis represents the "INTEREST RATE." - The horizontal axis represents "MONEY (Billions of dollars)."- **Lines:** - **Money Supply (Vertical Orange Line):** Represents the fixed amount of money in the economy. - **Money Demand (Downward Sloping Blue Line):** Indicates the inverse relationship between the interest rate and the quantity of money demanded. - **Equilibrium Point:** - Located where the Money Supply line intersects the Money Demand line. - At this point, the interest rate is 6% and the quantity of money is $30 billion.**Additional Information:**- Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $0.5 billion.- The change in the interest rate (according to the change you made to the money market in the previous scenario) therefore causes the level of investment spending to change by ___.**Note:**Consider how shifts in the Money Demand or Money Supply curves might affect the equilibrium interest rate and the implications for investment spending.

Aggregate expenditure: aggregate expenditure is the sum of consumption expenditure, investment…

Homework (Ch 21) 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 $3 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. 116

Homework (Ch 21) 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 $3 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. 116

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 where there are no taxes and no foreign trade, and households spend $0.90 of each additional dollar they earn and ; the marginal propensity to save (MPS) for this save the remaining $0.10. The marginal propensity to consume (MPC) for this economy is economy is ; and the multiplier for this economy is Suppose investment spending in this economy decreases by $150 billion. The decrease in investment will lead to a decrease in income, generating a decrease in consumption that decreases income yet again, and so on. Fill in the following table to show the impact of the change in investment spending on the first two rounds of consumption spending and, eventually, on total output and income. Hint: Be sure to enter a negative sign in front of the number if there is a decrease in consumption. Change in Investment Spending = -$150 billion First Change in Consumption = $ Second Change in Consumption $ Total Change in Output = $ billion billion billion In reality,…
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1) Determine the value of the multiplier for this economy, and find the equilibrium value of Y.
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Ab 27 Economics
13. Assuming that an economy’s aggregate demand is given by its domestic consumption C and investment I, AD = C + I = c0 + c1Y + I. In the economy’s goods market equilibrium, this equals its output: AD = Y. Solving for Y this yields: Y = [1/(1 -c1 )] (c0+ I) Given this equation, which of the following statements is correct? 1. The multiplier is given by 1 – c1. 2. The boost in the economy’s output is the same, regardless of whether the aggregate demand shock comes from an increase in investment I or in autonomous consumption c0. 3. The larger the marginal propensity to consume (c1), the smaller the multiplier. 4. If c1 = 1/3, then a £1 million increase in investment would result in a £2 million increase in output. 14. In the US and the UK, loans are…
In economics, the multiplier effect refers to the fact that when there is an injection of money to consumers, the consumers spend a certain percentage of it. That amount recirculates through the economy and adds additional income, which comes back to the consumers and of which they spend the same percentage. This process repeats indefinitely, circulating additional money through the economy. Suppose that in order to stimulate the economy, the government institutes a tax cut of $16 billion. If taxpayers are known to save 7% of any additional money they receive, and to spend 93%, how much total money (T) will be circulated through the economy by that single $16 billion tax cut? (Enter your answer rounded to the nearest whole number.) T≈ billion dollars
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 (AD₂). Suppose the government increases its purchases by $5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD) is parallel to AD. You can see the slope of AD, by selecting it on the following graph. 118 114 112 110 108 106 104 102 100 H 100 105 110 115 120 125 130 135 140 OUTPUT (Bloof dollar) 15.0 The following graph shows the money market in equilibrium at an interest rate of 7.5% and a quantity of money equal to $45 billion. 10.0 401 Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. 7.5 25 0 15 Money Supply Morey Demand 30 45 60 MONEY (Billens of…