Please complete the two attached graphs and answer the following questions for this. A. Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $2.5 billion. Based on the changes made to the money market in the previous scenario, would the new interest rate causes the level of investment spending to Rise or Fall? And by $1.02 billion, $0.62 billion, or $2.5 billion?B. Taking the multiplier effect into account, will the change in investment spending cause the quantity of output demanded to decrease or increase? And $1.2, $2, or $5 billion at every price level?C. The impact of an increase in government purchases on the interest rate and the level of investment spending is known as the crowding out, automatic stabilizer, multiplier, or liquidity preference effect? The following graph plots equilibrium in the money market at an interest rate of 1.5% and a quantity of money equal to $45 billion.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.?INTEREST RATE3.02.52.01.51.00.50015Money SupplyMoney Demand304560MONEY (Billions of dollars)7590Money DemandMoney Supply 7. Fiscal policy, the money market, and aggregate demandSuppose there is some hypothetical economy in which households spend $0.75 of each additional dollar they earn and save the $0.25 they have leftover. The following graph plots the economy's initial aggregate demand curve (AD₁).Suppose now that 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 AD₁ by selecting it on the following graph.(?)PRICE LEVEL116114112110108106104102100100AD₁105115120 125OUTPUT (Billions of dollars)110130135 140AD2AD 3

Investment is an asset that generates profit. The asset value increases over time and returns…

Answered: Please complete the two attached graphs…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Please complete the two attached graphs and answer the following questions for this.

A. Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $2.5 billion. Based on the changes made to the money market in the previous scenario, would the new interest rate causes the level of investment spending to Rise or Fall? And by $1.02 billion, $0.62 billion, or $2.5 billion?

B. Taking the multiplier effect into account, will the change in investment spending cause the quantity of output demanded to decrease or increase? And $1.2, $2, or $5 billion at every price level?

C. The impact of an increase in government purchases on the interest rate and the level of investment spending is known as the crowding out, automatic stabilizer, multiplier, or liquidity preference effect?

The following graph plots equilibrium in the money market at an interest rate of 1.5% and a quantity of money equal to $45 billion.
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.
?
INTEREST RATE
3.0
2.5
2.0
1.5
1.0
0.5
0
0
15
Money Supply
Money Demand
30
45
60
MONEY (Billions of dollars)
75
90
Money Demand
Money Supply

7. Fiscal policy, the money market, and aggregate demand
Suppose there is some hypothetical economy in which households spend $0.75 of each additional dollar they earn and save the $0.25 they have left
over. The following graph plots the economy's initial aggregate demand curve (AD₁).
Suppose now that 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 AD₁ by selecting it on the following graph.
(?)
PRICE LEVEL
116
114
112
110
108
106
104
102
100
100
AD₁
105
115
120 125
OUTPUT (Billions of dollars)
110
130
135 140
AD2
AD 3

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