A6 Consider a hypothetical economy in which households spend $0.50 of esch additional dollar they earn and save the remaining $0.50. The followingThe following graph shows the money merket in equilibrium at en interest rate of 1.5% and a quantity of money equal to $45 billion.graph showa the economy's initial aggregate demand curve (AD,).Show the impact of the increase in governmant purchases on the interest rate by shifting one or both of the curves on the following graphSuppose the government increases its purchases by $2 billion.Use the green line (triengle symbol) on the following graph to show the aggregate demend curve (ADa) efter the muitiplier effect takes plece.Hint: Be sure the new aggreçate demand curve (AD,) is parallel to AD,- You can ses the slope of AD, by selecting it on the following graph.3.0Money Supply25Money Demand11620Monay Supply114AD,1121.0110AD,Money Demand0.51041530456075MONEY (Billions of dollars)102100Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $1 billion. The change in the104 108 10e 110 112OUTPUT (Bilions of dollars)100102114118interest rate (according to the change you made to the money market in the previous scenario) therefore causes the level of investment spending tobyAfter the multiplier effect is accounted for, the change in investment spending will cause the quantity of output demanded tov byv at each price level. The impact of an increase in government purchases on the interest rate and the level of investment spending isknown as thev effect.LUsethe purple line (diamond symbol) on the graph ac the beginning of this problem to show the aggregate demand curve (ADa) after accounting forthe impect of the increese in government purchases on the interest rete and the level of investment spending.Hint: Be sure your final aggregate demand curve (AD) is parallel to AD, and AD2. You can see the slopes of AD, and AD, by selecting them onthe graph.PRICE LEVEL

The government expenditure multiplier, denoted by kG, is the effect of a change in revenue caused by…

ider a hypothetical economy in which households spend 50.50 of each additional dollar they earn and save the remaining 50.50. The following h ahowa the economy's initial aggregate demand curve (AD). pose the government increases its purchases by s2 bilon. the green line (triengle symbo) on the folowing graph to show the agpregete demand cunve (AD) after the mulspler efect tales plece. i Be sure the new aggregate demand curve (AD,) is paralel to AD,. Vou can see the slope of AD, by selecting it on the follewing graph. 12 10 100 100 104 100 0 110 OUTPUT (Bilions of dolars) 112 114

ider a hypothetical economy in which households spend 50.50 of each additional dollar they earn and save the remaining 50.50. The following h ahowa the economy's initial aggregate demand curve (AD). pose the government increases its purchases by s2 bilon. the green line (triengle symbo) on the folowing graph to show the agpregete demand cunve (AD) after the mulspler efect tales plece. i Be sure the new aggregate demand curve (AD,) is paralel to AD,. Vou can see the slope of AD, by selecting it on the follewing graph. 12 10 100 100 104 100 0 110 OUTPUT (Bilions of dolars) 112 114

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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